A recent study of Experian RentBureau data found that more than 50,000 renters who initiated their leases over a six year period ended their leases owing money. Industry experts convened during the National Apartment Association Education Conference to analyze the study of more than 750,000 U.S. renters of class A & B properties. While some of the analysis may have had predictable outcomes, several findings concluded very surprising results.
The Majority of Renters Have Credit Scores Below 700
While looking over a credit report to see where an applicant’s score places them within the rental criteria, the majority of applicants may not meet the requirement on score alone. And, 56% of all applicants sampled had a score below 7001.One reason for the high percentage of lower scores may be attributed to the fact that “Generation Y” (18 – 29 years old) who account for a critical audience in the rental market, comprise more than half of the applicants in the sample set.
When looking at the complete picture, this doesn’t always demonstrate poor credit history, but instead could be attributed to a lack of time spent building a credit rating. This represents another reason to utilize more than just a score for applicant screening;check to see if the person has ever been evicted. Also, check past rental payment history; do they pay their rent on time?
Two Skips Means Six Times the Risk
Following are three significant points to ponder:
- It may not be too surprising that a renter who has missed a payment in their past may miss one again in the future. However, a default renter can be substantially more accurately predicted during the resident screening process based on specific red flags. This study showed that while applicants with positive rental payment histories may have nearly a 6% default rate, renters with two or more prior debts run a rate nearly 6 times that (of 35%).
- An applicant with two or fewer late or NSF payments on a report on their record showed nearly an 8% rate of default. Those applicants from the same sample who showed three or more late or NSF payments sky rocketed up to a nearly 17% default rate. Data from this objective perspective, shows that while not everyone will have a pristine record, there is a defined line of when an applicant becomes a high risk.
- The housing industry is laden with rules and regulations in place to protect both the lessee and the lessor.The best way for all parties to benefit is to find the most consistent procedures that everyone can understand and adhere to. While this may not always favor the applicant who has not kept up with maintaining the cleanest of backgrounds, the goal is to encourage and aide in promoting a positive lifestyle.By offering methods of building credit history such as making payments on time there becomes an added incentive benefiting both the renter and landlord.
You may view the complete analysis by visiting the Experian RentBureau website.
CIC is a nationwide resident screening provider with 27 years of industry expertise offering credit from all 3 bureaus, nationwide eviction records, and nationwide criminal records. The CIC platform offers online rental applications with direct access to lease forms as well as integration with the NAA Lease Program and Yardi Software. To learn more about CIC visit their website at www.cicreports.com
1 For the purpose of this data analysis, Experian RentBureau utilized the VantageScore® advanced credit scoring model, which produces a highly predictive score and scores up to 14 million more consumers previously deemed unscoreable. VantageScore has a scale range of 501 to 990 to represent a consumer’s creditworthiness.
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