Author Topic: It seems like our credit scoring system is all messed up  (Read 1672 times)

rothwem

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It seems like our credit scoring system is all messed up
« on: June 08, 2018, 10:18:23 AM »
I'm in the process of finding a tenant for my rental property, and I've been getting in applications.  I usually see a few applicants like this, but the one I saw today was pretty bonkers.  This poor applicant had a 780 credit score, no late payments, $3X00/month gross income, and $250,000 in student loan debt. 

HOW THE HELL CAN YOU HAVE $250,000 IN STUDENT LOAN DEBT AND STILL HAVE A 780 CREDIT SCORE?

I might still rent to her, but there's no way I'd give her a loan, despite the 780 score.  So doesn't that basically make the credit score worthless?

Chris22

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Re: It seems like our credit scoring system is all messed up
« Reply #1 on: June 08, 2018, 10:24:52 AM »
I'm in the process of finding a tenant for my rental property, and I've been getting in applications.  I usually see a few applicants like this, but the one I saw today was pretty bonkers.  This poor applicant had a 780 credit score, no late payments, $3X00/month gross income, and $250,000 in student loan debt. 

HOW THE HELL CAN YOU HAVE $250,000 IN STUDENT LOAN DEBT AND STILL HAVE A 780 CREDIT SCORE?

I might still rent to her, but there's no way I'd give her a loan, despite the 780 score.  So doesn't that basically make the credit score worthless?

Credit score is the likelihood of your repaying your loans based on past performance.
Debt to income is the ability to repay your loans based on your income and debt load.

Both are important.  Neither is the whole story.  You can have a lot of debt, and be very good at paying it back.  Doesn't mean you should be eligible for incurring more debt, but that's not a reflection of your paying the debt back. 

MilesTeg

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Re: It seems like our credit scoring system is all messed up
« Reply #2 on: June 08, 2018, 10:34:53 AM »
I'm in the process of finding a tenant for my rental property, and I've been getting in applications.  I usually see a few applicants like this, but the one I saw today was pretty bonkers.  This poor applicant had a 780 credit score, no late payments, $3X00/month gross income, and $250,000 in student loan debt. 

HOW THE HELL CAN YOU HAVE $250,000 IN STUDENT LOAN DEBT AND STILL HAVE A 780 CREDIT SCORE?

I might still rent to her, but there's no way I'd give her a loan, despite the 780 score.  So doesn't that basically make the credit score worthless?

Credit score isn't intended to be the only factor when determining someone's loan worthiness, it's intended only as a measure of how well someone pays debts as agreed.

While no doubt many fly-by-night lenders exist, competent ones also verify income, assets, cash flow, tax status, debt load, etc. In other words they do the same thing you are smartly doing.

Much Fishing to Do

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Re: It seems like our credit scoring system is all messed up
« Reply #3 on: June 08, 2018, 10:38:54 AM »
The credit score is picture of a little area, not a big one.  It would be tough to go in and figure out how good someone has been at paying all their bills over time and this accomplishes much of doing that for you.

It does not look at income compared to debt (doesn't factor in income at all, which is one of the biggest indicators at how limited its use is).  You know very well having $250k in SL debt and $3k.mth in income is very different than the same person having no debt or having that debt but with $20k/mth in income.  Income (and proof of income) is easy for you to obtain and consider separately from the credit report/score.  This is similar to getting references, because neither of those other inputs tell you if this is someone that is a nightmare tenant that does pay their bills.

jlcnuke

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Re: It seems like our credit scoring system is all messed up
« Reply #4 on: June 08, 2018, 11:00:59 AM »
With $3k/month income, I would be more concerned with their monthly student loan required payment than their balance. If they're on one of the many income based payment plans, they likely still have plenty of money left over each month after their loans to afford a decent place to rent, so there would be no reason for a landlord to care about their balance.

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terran

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Re: It seems like our credit scoring system is all messed up
« Reply #5 on: June 08, 2018, 11:35:10 AM »
Since you know how much student loan debt she has I assume this is information you received when you ran her credit report? Assuming that's the case, then how they do it makes sense to me. If having a bunch of debt automatically tanked your score then all you'd know about her is that she has a ton of debt. As it is, you know she has a ton of debt and she's pretty good at paying it back, so you might rent to her.  Conversely, someone with a ton of debt and a low score would tell you they have a ton a debt and are bad at paying it back, so you probably wouldn't rent to them. This seems like a much more useful system than one that just tanked your score for having debt.

mathlete

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Re: It seems like our credit scoring system is all messed up
« Reply #6 on: June 08, 2018, 11:46:56 AM »
Taking on debt and repaying that debt is a good indicator of your ability to repay debt.

I would say that most medical residents are more creditworthy than the guy with no banking history who sells weed at the corner store.

kpd905

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Re: It seems like our credit scoring system is all messed up
« Reply #7 on: June 08, 2018, 12:03:09 PM »
They are probably on an Income Based Repayment plan with really low required payments due to their income.

Nate79

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Re: It seems like our credit scoring system is all messed up
« Reply #8 on: June 08, 2018, 09:44:23 PM »
I'm always amazed online when broke people so far in debt or low income brag about their high credit scores. As if a high credit score has any meaningful indication at winning at life, at having your finances in good shape, or actually having any money at all.

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