STRATEGY
RENTERS
Tenant Credit Scores SHOULD FICO SCORES BE A DETERMINANT OF A RENTAL APPLICANT’S WORTH?
by Daniel Berlind
credit score. Founded by Fair, Isaac and Company in 1956, it was pitched to lending institutions to measure consumer credit risk. By 1989, they introduced a general scoring sys- tem with values of 300-850 used to evaluate a borrower’s credit worthi- ness and propensity for default. In the 1990s, its application extended to qualifying for mortgages. Scores above 640 were deemed reliable. FICO score utilization spread from banks to employers, and particularly to property managers for evaluation of default risk. Technology has virtually placed the life story of every applicant at the fingertips of property managers to scrutinize for attributes and imped- iments. While tools like FICO can be extremely beneficial, they are not without their limitations and faults. In fact, one can easily derive a skewed and one-dimensional assessment of a rental candidate’s worthiness. FICO uses three credit bureaus for its credit scoring models: Experian, Equifax, and Transunion. Mathe - matical models form the basis for risk stratification. These three credit reporting agencies form an oligopo- ly, leaving consumers with no say or choice over the influencing factors. Touted as a competitor to FICO, VantageScore is another private col- laboration of the same three credit bureaus, utilizing the same 300-850 scoring values. While there may be a modicum of increased flexibility and input with this system, the innate limitations are still present and FICO is used in far greater percentages by lenders and landlords.
S
ecuring trustworthy rent- ers is an ongoing challenge
gut feelings, and an assessment of the applicant’s status was the algo- rithm of bygone days. Unfortunately, this personal approach was often colored by the data collector’s per- sonal biases, prejudices, and social mores. The prospective applicant could be accepted or declined based upon very subjective and fluctuating criteria. For the sake of impartiality and security, more advanced screen- ing tools were needed.
and migraine-inducing process for property managers. Screening applications for fraudulent data and document fabrication to decrease eviction rates and rental fee defaults down the road is a top priority. Prop- erty managers, with small to large rental inventories, need screening tools that provide reliable data to support their “best guess” decisions about applicants. Once upon a time, landlords based their decisions upon information col- lected from previous landlords, calls made to employers, and reference letters from pastors and teachers. The formula of human interactions,
THE CREATION OFA WORTHINESS SCORE One of the most widely used
assessment tools, and fast becoming the most controversial, is the FICO
66 | think realty magazine :: november 2021
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