Key Takeaways:
- Focusing on just the number can be misleading.
- The credit history tells a detailed story.
- Look at the entire picture.
So, you are a real estate investor or house hacker and ready to look at tenant applications. The prospective tenants submit paystubs, fill out the application, and comes time for the credit. Some landlords put a firm number down as a requirement. I saw one rental listing where the landlord required a credit score of at least 720. But what really matters? It is up to you and your comfort levels, demographics, etc. But here is one take.
The number isn’t as important as the history. Coming from experience, I’ve seen scores go in different directions for a variety of reasons. I recall paying off debt and my credit score went down. But the history tells a story. Here is a great example of two prospective tenants:
- Has a 700-credit score but has bad history. Delinquencies, multiple credit card accounts, and one collection notice.
- Has a 650-credit score. The applicant is 20 years old so not a lot of history to show but has a car payment and a credit card where they have been consistent on time payments.
Who do you choose? If you had the hard stop at 700 credit score, you never would have considered applicant #2. However, applicant #2 is a better choice in this category.
Of course, there are risks with any tenant you choose. I’ve heard stories where the tenant looks good on paper and became a nightmare and vice versa. But with the way the political climate is for tenants and landlords, it is imperative to do the right screening to get the tenant with the highest probability of success.
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