By convention, when qualifying tenant prospects, most landlords will consider credit history, residential history, and income. Some will even look at criminal history. The question is—how should the landlord weight the results of these inquiries?
Commonly, the credit history becomes the 800 pound gorilla in the room. But I question the wisdom in this thinking. Rather, I would propose that if there must be an 800 pound gorilla, it ought to be the residential history. While the credit history does offer good clues about tenant money management discipline, property managers, all too often, fall into the trap of referencing only the credit score, perhaps thinking that it is meaningful and relevant. I suppose the score could be consulted for its reference value. But in my case, I merely glance at the credit score. I don’t use it in my factoring at all. I do consult the remainder of the report, as I am interested in determining if bills are getting paid, if there has been a foreclosure (eviction), recent bankruptcy, judgment, etc. And then I want to ascertain what caused these circumstances, and whether there is evidence that their behavior has improved since the event occurrence. But I think the residential history speaks more directly to the purposes of a landlord.
There are two aspects of the residential history that interest me—the duration of pass leases, and the comments of the previous landlord. My supposition is that, regardless of credit standing, if the tenant prospect has handled these things well for a long time, and assuming the income is stable and sufficient, I just about don’t need the credit report at all, and whether a best or worst case scenario it only amounts to 20% of my assessment anyway. I would even consider relaxing my usual standards for the Rent/Income ratio if the prospect had a stellar residential history.
In order to keep these qualifying criteria in perspective, I employ a qualification matrix. This helps keep me from overly weighting one unsavory criterion to the unnecessary detriment of the prospect. I would highly recommend such a model for any landlord wanting to objectively judge a prospect.