Author Topic: Denying an Application based on credit report  (Read 6643 times)

ENL

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Denying an Application based on credit report
« on: December 16, 2016, 05:22:52 PM »
Hi, newbie landlord here trying to fill a vacancy in MI.  I use cozy.co and had a person apply online after just speaking to me on the phone.  My issue with their application is that they have a low credit score and unpaid bills.  I am having some difficulty finding out how to best send them a rejection.  Can someone let me know a good resource for wording the rejection?  It seems that I legally also need to send an Adverse Action Notice, so I want to make sure I do everything correctly.  Also, would this need to be sent by mail or would it be appropriate to send by email?  This person seems to want an answer asap, and keeps calling me.

Also, any advice on encouraging people to not apply when they have a bad credit score?

Thanks!

Imerz

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Re: Denying an Application based on credit report
« Reply #1 on: December 17, 2016, 08:38:40 AM »
Why would you have to justify cause for rejection?  Could you return an email simply stating that they did not fit the (self-chosen) criteria you are seeking in a rental candidate?   That seems easiest to an uneducated beginner.

Also, I'd be concerned with the pressure the applicant is placing on you with the incessant phone calls and "need" for an immediate answer--seems like they've been rejected before and are trying to make you say yes before seeing or weighing all of the options.  Speaking personally, if all my ducks are in a row, I'll wait for the lessor to reply at their convenience.

Another Reader

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Re: Denying an Application based on credit report
« Reply #2 on: December 17, 2016, 10:21:23 AM »
This applicant is nagging you because they hope you can be bullied into renting to them, as no one else will.  Just explain that s/he did not meet the minimum financial requirements and follow up with whatever legal notice is required in your jurisdiction.  Do not talk to the applicant or reply to any e-mails or phone calls beyond that, as that gives the applicant more chances to bully and harass you and to come up with reasons to sue.

rachael talcott

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Re: Denying an Application based on credit report
« Reply #3 on: December 23, 2016, 05:56:27 PM »
I list on CL and give my credit and income requirements.  I also warn them that I ask pre-screening questions before showing the house.  Then when I get the emails I ask them for the credit score of all adults.  About half of the respondents do not meet the requirements and are hoping that I will make an exception for them.  If they don't meet the requirements, I explain that I have already turned down a lot of people and it wouldn't be fair to make exceptions.  Only rarely will anyone protest.  When I first started I didn't make my credit requirements explicit, and I got hundreds of inquiries from people with terrible credit. 


Gary123

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Re: Denying an Application based on credit report
« Reply #4 on: December 24, 2016, 02:33:36 AM »
I haven't checked anyone's credit in 15 years of being a landlord of multiple properties.  The formula is really quite simple; did they pay rent in-time where they rented pereviously.

Who cares if they paid a car payment late, failed to pay some credit card on time or have outstanding medical bills.  Payment history of rent is really the most important measure of whether they will be a good tenant.

Management companies rely heavily on credit checks since they can't deny someone based on gang tattoos, smelling terribly or just being rude as these less objective criteria are hard to document and report back to the owner.  Therefore, the "property manager" can rent to a lousy person with good credit and show they followed all the proper screening procedures thus avoid liability.  Finding good renters involves important subjective measures like how forthcoming they are in the interview.

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #5 on: December 24, 2016, 06:24:48 AM »
I haven't checked anyone's credit in 15 years of being a landlord of multiple properties.  The formula is really quite simple; did they pay rent in-time where they rented previously.

Who cares if they paid a car payment late, failed to pay some credit card on time or have outstanding medical bills.  Payment history of rent is really the most important measure of whether they will be a good tenant.

I do.  I use credit score extensively.  Almost exclusively.  I check all occupants 18+.  If one fails, they all fail.  Even the 18 year old kid is checked and will cause the parents to be rejected.

When you have multifamily properties, you need to have people that know how to live in a civilized manner, and if they pay rent.  I do not want the bad tenant to run out my other tenants. 

A past landlord is no one to listen to, they are unreliable.  Even I used to give good recommendations to tenants I wanted to get rid of.  Now I just have good people.  I have written extensively about these topic on my blog. 

My background check company creates a letter that meets the federal rules.  Here is theirs.  I xx'd out the companies name.  You need to be 100% correct with your letter, as the tenants have the right to see the information and know where to get a copy of it.  You CANNOT just give them a copy of what you received.

===>

Thank you for your application for residency. After carefully reviewing your application, we are sorry to advise you
that we cannot accept your application for residency at this time. This decision has been based upon information
provided by the following source(s) of information:

Trans Union - Consumer Relations
2 Baldwin Place
PO Box 1000
Chester, PA 19022
(800) 888-4213
http://www.transunion.com/direct

XXXXXX, Inc
xxxxx anytown ave #100
anytown, MN 55111
phone: (800) 555-1111
fax: (866) 555-1111
email: consumerinfo@xxxxxx.com

You are advised that you have the right under the Fair Credit Reporting Act to know the information contained in
your credit file at the consumer reporting agency. You have the right to a free copy of your report from the
reporting agency, if you request it no later than 60 days after you receive this notice. In addition, if you find that
any information contained in the report you receive is inaccurate or incomplete, you have the right to dispute the
matter with the reporting agency. You can find out about the information contained in your file by contacting
XXXXXX, Inc as indicated above.

When requesting a copy of your consumer report by mail or fax, be sure to include your full name, address, Social
Security number and most recent former address to match the file. You must include your signature and the date
of the request. Please indicate that you have had adverse action taken due to information contained in your credit
file.

XXXXXX, Inc only provided information about your residential, employment, credit and/or criminal history. It
took no part in making the decision to reject your rental application, nor can it explain why the decision was made.

NOTICE: The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the
basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into
a binding contract); because all or part of the applicant's income derived from any public assistance program; or because
the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that
administers compliance with this law concerning this creditor is the Federal Trade Commission, Equal Credit Opportunity,
Washington, DC 20580



rachael talcott

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Re: Denying an Application based on credit report
« Reply #6 on: December 24, 2016, 07:29:46 AM »
I haven't checked anyone's credit in 15 years of being a landlord of multiple properties.  The formula is really quite simple; did they pay rent in-time where they rented pereviously.

Who cares if they paid a car payment late, failed to pay some credit card on time or have outstanding medical bills.  Payment history of rent is really the most important measure of whether they will be a good tenant.

Management companies rely heavily on credit checks since they can't deny someone based on gang tattoos, smelling terribly or just being rude as these less objective criteria are hard to document and report back to the owner.  Therefore, the "property manager" can rent to a lousy person with good credit and show they followed all the proper screening procedures thus avoid liability.  Finding good renters involves important subjective measures like how forthcoming they are in the interview.

Experian did a study of whether or not credit score matters independently of rental history (since they keep track of both) and the answer was yes.  Rental history matters, too, but someone in the 501-599 bracket with good rental history has roughly twice the risk of rental default of someone with negative rental history in the 700-799 bracket.  I few years back, I considered changing my rules, since I could raise rent if I accepted lower credit scores.  But I did the math and with a 15% default rate it's just not worth it, at least not given the eviction laws in my state.  It takes several months to get someone out, and that's a lot of lost income.  Your mileage may vary. 

https://www.experian.com/assets/rentbureau/white-papers/experian-rentbureau-rental-history-analysis.pdf


GilbertB

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Re: Denying an Application based on credit report
« Reply #7 on: December 24, 2016, 08:26:14 AM »
What if an applicant had a credi score of 0 (or trending to 0) ?

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #8 on: December 24, 2016, 02:24:59 PM »
What if an applicant had a credi score of 0 (or trending to 0) ?

No one has a credit score of 0.  No one can see a trend, unless you have multiple credit reports from an applicant.  They can however, have no score. 

There are two types of people without credit scores.  Newbies, and deadbeats.  Both are risky.  Do not

Here is some analysis on the subject.
http://www.nononsenselandlord.com/2014/03/risk-of-tenants-with-low-credit-score-explained/

GilbertB

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Re: Denying an Application based on credit report
« Reply #9 on: December 25, 2016, 01:34:42 AM »
But, if someone has no debts, uses a debit card and thusly no payments, doesn't their credit score go down to 0?
Ins't a high credit score just an indication that you play kissy face with the banking world?

(Just asking, not trolling, trying to understand US logic)

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #10 on: December 25, 2016, 05:24:23 AM »
But, if someone has no debts, uses a debit card and thusly no payments, doesn't their credit score go down to 0?
Ins't a high credit score just an indication that you play kissy face with the banking world?

(Just asking, not trolling, trying to understand US logic)

A FICO score is between 300 and 850.  Never 0.  If they only used a debit card, they would still have cell phone accounts.  Utility accounts.  Maybe a car loan. 

While they may be a great tenant, they are risky.  I let others take chances.  I would rather make money.  I do not have a underlying motive to help all the mis-fortunate people in the world out.  Only the ones that play by civilized societies rules.  I would rather a tenant that plays "kissy face" with the banking world, that a tenant that eschews higher authorities, like a landlord.

A high credit score is a personal responsibility score.  It shows you make promises and keep by them.  People that do not have a score know that, and know that their life is more difficult because of it.

And for those that think they can go by their gut feel, remember there were a lot of Ted Bundy victims that thought the same thing.

If you really want to rent to them, use a MTM lease and a double damage deposit.  And raise the rent by at least 10% more, especially of the State limits your damage deposit.

pbkmaine

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Re: Denying an Application based on credit report
« Reply #11 on: December 25, 2016, 06:28:13 AM »
But, if someone has no debts, uses a debit card and thusly no payments, doesn't their credit score go down to 0?
Ins't a high credit score just an indication that you play kissy face with the banking world?

(Just asking, not trolling, trying to understand US logic)

My husband and I have no debt and use only a tiny percentage of our available credit each month, which we pay off in full. Our scores are in the 800s.

gj83

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Re: Denying an Application based on credit report
« Reply #12 on: December 25, 2016, 06:29:54 AM »
But, if someone has no debts, uses a debit card and thusly no payments, doesn't their credit score go down to 0?
Ins't a high credit score just an indication that you play kissy face with the banking world?

(Just asking, not trolling, trying to understand US logic)
That is Dave Ramsey logic.  DR also says that if you have an 800 that you had to pay over $100,000 in interest.  I have over 800.  Before I owned a home I had probably only paid a couple thousand in car loan interest but still had 800.  People can pay over 100,000 in interest and still have crappy credit if they use too much of their credit limit and miss payments.
It's not hard to have a credit card for a long time and keep usage under 30% of the limit and pay in full monthly and therefore have a good credit score. 

I've heard there is also a change in the bills people pay.  People used to always pay rent/mortgage first so if someone had perfect rent history but a couple missed bills here or there they were still safe.  I've heard that now people are more likely to skip the rent or mortgage if they can't pay everything.  I wonder if anyone has evidence of this.


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GilbertB

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Re: Denying an Application based on credit report
« Reply #13 on: December 25, 2016, 01:48:19 PM »
Ok, thanks, it's a strange system seen from this side of the pond, good to get insight.

rachael talcott

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Re: Denying an Application based on credit report
« Reply #14 on: December 25, 2016, 03:19:50 PM »
Ok, thanks, it's a strange system seen from this side of the pond, good to get insight.

Out of curiosity, what do they do on your side of the pond?  Our credit score system is fantastic for small landlords because it's such a good predictor of who is likely to pay, and evictions are very expensive. 

GilbertB

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Re: Denying an Application based on credit report
« Reply #15 on: December 25, 2016, 03:51:26 PM »
Ok, thanks, it's a strange system seen from this side of the pond, good to get insight.

Out of curiosity, what do they do on your side of the pond?  Our credit score system is fantastic for small landlords because it's such a good predictor of who is likely to pay, and evictions are very expensive.
Last time I rented, they asked to see my last 3 months of pay, my bank ID, my full ID, my last tax return, a document from my employer, my last 3 months of rent receipts and I had to provide 3 months of rent as collateral.
The renter can't ask for a credit report, but even if it is borderline legal, they will take the bank ID of their chosen candidate to their banker, who will check and either nod up/down or left/right if there are red flags or not, but neither will know how exposed the rentee is...

It's the renter that has to do very careful due diligence, as kicking out deadbeats can take from 3 months to over a year...

rachael talcott

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Re: Denying an Application based on credit report
« Reply #16 on: December 26, 2016, 07:15:12 AM »
Ok, thanks, it's a strange system seen from this side of the pond, good to get insight.

Out of curiosity, what do they do on your side of the pond?  Our credit score system is fantastic for small landlords because it's such a good predictor of who is likely to pay, and evictions are very expensive.
Last time I rented, they asked to see my last 3 months of pay, my bank ID, my full ID, my last tax return, a document from my employer, my last 3 months of rent receipts and I had to provide 3 months of rent as collateral.
The renter can't ask for a credit report, but even if it is borderline legal, they will take the bank ID of their chosen candidate to their banker, who will check and either nod up/down or left/right if there are red flags or not, but neither will know how exposed the rentee is...

It's the renter that has to do very careful due diligence, as kicking out deadbeats can take from 3 months to over a year...

Now I feel really grateful for the system that we have here.

GilbertB

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Re: Denying an Application based on credit report
« Reply #17 on: December 26, 2016, 08:07:55 AM »
It's actually simpler than it sounds:

You put an ad up, it's implied that you must earn 3 to 4 times, people send in an email with their name, salary and their employer, with that in hand, you reduce the pool to a few prospectives.

They come visit the property with all their docs, you sit down, if they check out, you copy theirs docs, go to your bank, check for red flags.
If ok, call to sign rent agreement.

A property is usually a week advertised, chossing your finalists, the visits, checks and signing take one day.

If you rent with an angency the process is similar except the advertise and accept visits longer.

Paul der Krake

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Re: Denying an Application based on credit report
« Reply #18 on: December 26, 2016, 09:34:33 AM »
As someone who's experience both systems, I like the US flavor a lot more. Not having an objective, unbiased credit score system makes it much harder to secure housing for certain classes of renters. Those with self-employment income, immigrant-sounding names, unusual employment, or any situation that veers away from the standard 40-hour workweek is going to have a hard time convincing a landlord to rent to him.

Funny anecdote: a family friend who works as a head honcho for a huge French megacorp in Egypt tried to get a small apartment in Paris, because he was tired of staying in hotels every time he came into town for meetings. It didn't matter that he earns many many times the monthly rent, the agency refused to rent to him because of the foreign income. He offered to pay the entire year of rent upfront, and they still refused. The agency told him the only way they would rent to him was if he got his elderly mother living on a fixed pension to co-sign for her 1%er of a son, because she lives in the country and he doesn't.


Fireball

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Re: Denying an Application based on credit report
« Reply #19 on: December 26, 2016, 10:52:45 AM »
I haven't checked anyone's credit in 15 years of being a landlord of multiple properties.  The formula is really quite simple; did they pay rent in-time where they rented previously.

Who cares if they paid a car payment late, failed to pay some credit card on time or have outstanding medical bills.  Payment history of rent is really the most important measure of whether they will be a good tenant.

I do.  I use credit score extensively.  Almost exclusively.  I check all occupants 18+.  If one fails, they all fail.  Even the 18 year old kid is checked and will cause the parents to be rejected.

When you have multifamily properties, you need to have people that know how to live in a civilized manner, and if they pay rent.  I do not want the bad tenant to run out my other tenants. 

A past landlord is no one to listen to, they are unreliable.  Even I used to give good recommendations to tenants I wanted to get rid of.  Now I just have good people.  I have written extensively about these topic on my blog. 

My background check company creates a letter that meets the federal rules.  Here is theirs.  I xx'd out the companies name.  You need to be 100% correct with your letter, as the tenants have the right to see the information and know where to get a copy of it.  You CANNOT just give them a copy of what you received.

+100. Not only does a credit score indicate how well someone pays, it's also an indicator of how they will treat your house and their neighbors. I work for a mortgage company with roughly 4,000 repossessions annually.  We lend to borrowers with a 400 credit score all they way up to 800.  On average, our recovery is about 10% better on high credit borrowers compared to low credit borrowers. A 500 score borrower is much more likely to beat your house to death regardless of how timely they pay you. Exceptions to every rule of course.

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #20 on: December 26, 2016, 12:07:07 PM »
+100. Not only does a credit score indicate how well someone pays, it's also an indicator of how they will treat your house and their neighbors. I work for a mortgage company with roughly 4,000 repossessions annually.  We lend to borrowers with a 400 credit score all they way up to 800.  On average, our recovery is about 10% better on high credit borrowers compared to low credit borrowers. A 500 score borrower is much more likely to beat your house to death regardless of how timely they pay you. Exceptions to every rule of course.

Thank you for the confirmation.  I manage a 120 unit apartment complex.  Once we initiated credit score rules, the number of police incidents went down dramatically.  From 540+ a year, to less than 50.

ENL

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Re: Denying an Application based on credit report
« Reply #21 on: December 26, 2016, 05:03:47 PM »
OP here.  To clarify: in this case, the credit score was in the low 300 range and indicated that the applicant's monthly debt payments nearly equaled their monthly income.  Really glad I ran the report.  I understand not all good renters have a good credit score but there are other red flags to check for in the credit report as well.

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Re: Denying an Application based on credit report
« Reply #22 on: December 27, 2016, 07:44:36 PM »
What score do people typically reject a candidate for? Does this depend on the rental price.  Lower rent lower accepted score?

We rent out a property.  The management company provides us the credit score when looking to rent out to new tenants.  We've never had someone below 700 apply so haven't really thought about it (our first tenant did break the lease early after asking for a 2 year lease because they bought a house in town).

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #23 on: December 28, 2016, 07:04:23 AM »
What score do people typically reject a candidate for? Does this depend on the rental price.  Lower rent lower accepted score?

We rent out a property.  The management company provides us the credit score when looking to rent out to new tenants.  We've never had someone below 700 apply so haven't really thought about it (our first tenant did break the lease early after asking for a 2 year lease because they bought a house in town).

I use a 625 minimum.  For all adults living in the property, even an 18 year old kid that is not responsible for paying the rent.  It is also a personal responsibility indicator.  Do not let any one ever tell you that credit score doesn't matter.  I see far too many background checks and tenant issues to know it is a MAJOR indicator.  Insurance companies and banks know this well.

If you know nothing about credit score, it is hard.  If you know that the average renter credit score is ~658, you know that that number should be easy to beat, but you exclude about 50% of the applicants.

If you know that only 2% of the population has a credit score under 500, you know that excluding them is a no brain-er.  Yet I have seen a landlord take a 390 score once.  It was a midnight move out after 14 months.  And they took the landlord to Court.

If you have a higher-end rental, you exclude a lot of people just by price.  They cannot afford it.

A clean criminal record is easy to get, you just do not get caught.  A credit score is something you have to work for.

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Re: Denying an Application based on credit report
« Reply #24 on: December 28, 2016, 09:47:51 AM »
I use a 625 minimum.  For all adults living in the property, even an 18 year old kid that is not responsible for paying the rent.  It is also a personal responsibility indicator.  Do not let any one ever tell you that credit score doesn't matter.  I see far too many background checks and tenant issues to know it is a MAJOR indicator.  Insurance companies and banks know this well.

So a hypothetical high school senior with zero credit history? What does that do to the application?

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Re: Denying an Application based on credit report
« Reply #25 on: December 28, 2016, 10:16:09 AM »
No history means no rental.  Too risky.  No history of financial behavior and level of responsibility to evaluate. 

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Re: Denying an Application based on credit report
« Reply #26 on: December 28, 2016, 10:20:17 AM »
No history means no rental.  Too risky.  No history of financial behavior and level of responsibility to evaluate.

Even if the person with no history isn't actually the responsible party? That's insane. I'm not talking about an 18-year-old trying to rent an apartment, I'm talking about a family with an 18-year-old, and would otherwise be approved with a 17.9-year-old.

Let's say the parents both come back 750+ because they're not stupid. Their kid with no credit history is going to turf the application?

Another Reader

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Re: Denying an Application based on credit report
« Reply #27 on: December 28, 2016, 10:29:59 AM »
If you have an 18 year-old in high school with no job, that might be acceptable.  However, you could have a discrimination complaint if you then reject a family with an 18 year old working a job, with no credit score. 

It's tough, but rental property owners have to protect themselves and in multi family rentals, the other tenants.

NoStacheOhio

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Re: Denying an Application based on credit report
« Reply #28 on: December 28, 2016, 10:34:43 AM »
If you have an 18 year-old in high school with no job, that might be acceptable.  However, you could have a discrimination complaint if you then reject a family with an 18 year old working a job, with no credit score. 

It's tough, but rental property owners have to protect themselves and in multi family rentals, the other tenants.

Please explain how a family with an 18-year-old high school student is riskier than a family with a 16-year-old high school student. That's thinly veiled age discrimination.

Another Reader

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Re: Denying an Application based on credit report
« Reply #29 on: December 28, 2016, 12:31:40 PM »
16 year olds are legally children.  The parents are responsible for their actions.  18 year olds are legally adults.  They are responsible for their actions.


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Re: Denying an Application based on credit report
« Reply #30 on: December 28, 2016, 12:42:05 PM »
16 year olds are legally children.  The parents are responsible for their actions.  18 year olds are legally adults.  They are responsible for their actions.

And the renters (parents) are liable for damage to the unit, regardless of who did it.

Another Reader

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Re: Denying an Application based on credit report
« Reply #31 on: December 28, 2016, 01:06:23 PM »
In theory, everyone on the lease is liable for damage.  I prefer to rent to responsible tenants that won't damage the property or cause other problems rather than worry about who is responsible for damage after the fact.  Using credit scores for all legal adults residing in the property gives me a better chance of getting that type of tenant.  It also gives the landlord a non-discriminatory way to select tenants.  Credit score does not discriminate on the basis of race, gender, disability, or against any protected class.

Paul der Krake

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Re: Denying an Application based on credit report
« Reply #32 on: December 28, 2016, 02:15:44 PM »
AnotherReader and NoNonsenseLandlord: have you ever refused to rent to new immigrants/foreign workers here on a temporary basis? In my experience, landlords with a credit score policy will waive it for applicants who are fresh off the boat.

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Re: Denying an Application based on credit report
« Reply #33 on: December 29, 2016, 05:41:55 AM »
Are LL laws federal in the US? Here (Ontario - Canada) LLs can take first and last month's rent, but not a damage deposit. Much of this teenage kid conversation is a moot point since whatever damage the kid does will be on the LL with no cash to cover it at all. I mean, you can hope to have a peaceful eviction followed by a small claims suit, but good luck on all that. Even if you win, you'll lose.

Another Reader

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Re: Denying an Application based on credit report
« Reply #34 on: December 29, 2016, 07:54:48 AM »
The issue has never come up.  My concern would be a discrimination complaint from someone that was refused because of no credit score that was not a new immigrant/temporary worker. 

NoNonsenseLandlord

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Re: Denying an Application based on credit report
« Reply #35 on: January 02, 2017, 11:00:02 AM »
Even if the person with no history isn't actually the responsible party? That's insane. I'm not talking about an 18-year-old trying to rent an apartment, I'm talking about a family with an 18-year-old, and would otherwise be approved with a 17.9-year-old.

Let's say the parents both come back 750+ because they're not stupid. Their kid with no credit history is going to turf the application?

Yes, I would reject a family with an 18 year old kid with a sub 600 credit score.  If he was 17.9, they would be approved, and I would regret it later.

A low score implies that there will be behavior issues.  Nothing worse than an 18 year old kid with behavioral issues living in your rental.  It's time the parents give the kid luggage for Christmas, graduation or a birthday.  or a Saturday present.

I would guess the kid of a parent with a 750+ credit score would have a good score too.  The apple never falls too far from the tree.

clarkfan1979

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Re: Denying an Application based on credit report
« Reply #36 on: January 07, 2017, 03:57:32 PM »
I have had applicants with a history of unpaid bills and judgments filed against them. I always send an email to all applicants to let them know that I rented the house to someone else. Someone with a bad credit report has never emailed me back and asked why I didn't rent to them. They know why.