OPERATIONS
SCREENING TENANTS
WhyUsing Credit Scores to Screen Tenants Is a Big Mistake
YOU’RE ELIMINATING SOME OF YOUR BEST POTENTIAL LONG-TERM TENANTS WHEN YOU BASE A RENTAL DECISION SOLELY ON CREDIT SCORES.
by Greg Slaughter
verything and everyone in the property management indus-
becomes almost impossible because they are buying a home way before six years. By renting to these high credit tenants, we are creating our own turnover and extra work—plus losing money. If you want to keep a tenant for six years or longer, you should rent to someone with bad credit. This ensures they will not be buying a home anytime soon and, quite frankly, no one else will eagerly rent to them, so they have nowhere else to go. FINDING THE RIGHTTENANTS When most people hear this strat- egy, they immediately respond that if a prospective tenant has bad credit, they won’t pay the rent. Is that what you were thinking? This could not be further from the truth if you know how to find the right people. In fact, experience shows these tenants are just as dependable with the rent. At the same time, they are more loyal— and headache and hassle free. Perhaps it is because they see the rental as a home for years rather than as just a temporary stop until they buy their home. How can someone have a really bad credit score, but be a great pay- ing tenant? Do you know anyone off the top of your head who is a great person (always pays their bills) but may have
been in a bad accident or accumu- lated a lot of medical bills—and now has a really bad credit score because of it? Or what about school loans? Or maybe just a short time ago they went through a divorce or job loss—but are now back on their feet? There are many situations that can ruin the credit score of a solid payer with a great credit score in a very short amount of time. Does this make that person a bad possible tenant? Does it mean they won’t pay the rent? Should they automatically be ruled out because they have a bad credit score? Absolutely not! In fact, you should target these individuals. They are extremely thankful and grateful you are willing to work with them, because no one else will. By the way, another benefit of accepting tenants with bad credit scores is reducing your competition. The bad credit tenants who pay every month are grateful and will happily stay in the rental for many years. So how do you find these prospective good paying, but bad credit tenants? You start by marketing for them. You must include verbiage in your marketing ads that stating their credit score does not matter. Doing so encourages those with bad credit scores to contact you—and they happily will because everyone else automatically rules them out.
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try teaches us to use credit scores to screen tenants. We are taught to pull credit scores and rent only to prospec- tive tenants with good credit scores. If you are following this practice, you are making a big mistake. In fact, it could be costing you thou- sands of dollars and a lot of need- less headaches. When you take a moment and think about it, the mistake is very obvious. HOMEBUYERS CREATE TURN If someone has a good credit score and good income (another qualifier we all follow), what are they most likely going to do sooner rather than later? The vast majority, though not all, will buy a home soon (usually in 1-2 years). When they do, you have to ”turn” your rental. Sounds obvious and crazy now that you think about it, doesn’t it? But that is exactly what the industry teaches, and the advice everyone follows. You can potentially lose multi - ple tenants every year as they buy homes. We all know turning a home is not fun, costs money, and takes a lot of work to prep and rent it again. As a landlord, you want to keep the tenant in the home as long as possible, striving for a minimum of six years. Unfortunately, if we rent only to high credit tenants, this
72 | think realty magazine :: march – april 2022
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