The Choice is Yours
The Choice is Yours
Most landlords agree that credit reports provide a wealth of valuable information about an applicant. Although other sources can be used to verify some of the information supplied by the applicant in his personal interview, on his application, or identification documents, a credit report is the most complete compilation of data about the applicant’s use of credit, payment history, and overall financial management. This document is the one document a landlord needs to paint in the details to make an informed decision. The applicant’s historical credit usage can be a predictor of future money management. The landlord must analyze the risk exposure that the applicant’s data history presents.
Each landlord operates a unique business with differing characteristics and resources. Markets vary and regional economies impact the size of applicant pools to fill vacancies. The decisions on how to run his business are made according to sound business criteria but often take into account the landlord’s individual comfort level and resource capabilities. What works for one landlord may not work for another landlord. The landlord is free to choose products and services that help him, his business, operate efficiently and effectively.
Tenant screening products have expanded to provide landlords – of every size, market, and comfort levels – the information they need to quickly and easily manage their properties. From the traditional scored credit report to credit recommendations based upon specific rental criteria to the latest interactive web-based landlord-tenant information partnership, the landlord has a real choice in the type and delivery of a credit screening product that meets
his needs.
Traditional Credit Reports
Long considered the gold standard of tenant screening, a full, scored credit report is familiar to landlords and tenants alike. Many a tenant has been selected using a credit score as the criteria for his tenancy. However, the full credit report contains much more than just a score. It is in detail the credit life history of the individual as reported by his credit grantors. The history may be long or short depending upon the individual’s use of credit over time.
With a full credit report, a landlord can corroborate personal information as supplied on the rental application – Social Security number, full name and aliases, date of birth, current residential address and previous addresses if reported, employer name, address and job position if reported, spousal information; review of the individual’s payment history including credit trades, revolving, and installment accounts, account numbers and balances, accounts placed for
collection or written off; and public records for bankruptcies, tax liens, and civil judgments. A separate inquiries section lists recent requestors of the report which could indicate the applicant is shopping rentals or is being reviewed by
another grantor.
This credit report is ideally used by the landlord who wants to see detail, and carefully analyze that detail to gauge his risks. This type of landlord prefers to go beyond a credit score but at the same time does not underestimate the risk that a score can represent. Management of larger properties, multi-unit properties or multi-location properties is often best served by this kind of full-service screening.
The Fair Credit Reporting Act (FCRA) requires end users of consumer reports to have a legitimate and lawful business reason (permissible purpose) to receive a report or information contained in such a report. Tenant screening companies require submission of applicable business documents to comply with this requirement.
In addition the credit bureaus have instituted more stringent requirements for data security protection to reduce instances of identity theft and fraudulent use of credit data. To comply with this credentialing requirement, landlords as the end users of credit data must pass a physical on-site inspection of the location where consumer reports are accessed and stored. Establishment of permissible purpose and successful approval of on-site inspection is required before credit bureaus will approve access to credit reports.
Rent Recommendation
Another type of credit screening product available to landlords is a “rent-decisioning” model that analyzes the applicant’s credit history and presents a summary of the credit-report based information. The credit risk summarization is a decision tool that is sometimes better known as a “rent right,” “pass-fail,” or “scorecard” rental recommendation.
This tenant credit screening product is a software-based proprietary risk analysis model programmed with the landlord’s specific credit criteria. The landlord customizes his scoring criteria for each property and specifies the action to be taken for certain types and dates of credit events. The model can use a simple rules base (similar to if…then) or a statistical based program to evaluate the applicant’s credit risk. Most decisioning models provide a credit recommendation to accept, to accept with conditions, or to decline based upon the applicant’s information and the scoring criteria supplied. A scorecard model provides a letter grade based upon the applicant’s credit score.
The rules and criteria set for the decisioning model should fully reflect the landlord’s credit policies and give emphasis to those issues that are of concern to his unique operations. In the rent recommendation model, a landlord does not have direct access to the applicant’s credit report. The model does the screening and prepares the recommendation report.
Some landlords prefer to use this type of credit screening for the very reason that it is a so called “third party review.” The landlord does not have to be as concerned about securing or eventual disposal of the applicants’ sensitive personal information and can feel more confident that screening is performed consistently and objectively, that is, without discrimination.
Consumer Initiated Option
An innovative new credit product provides screening options to the private landlord that hadn’t been possible before. The process of requesting credit reports is streamlined, requiring no membership fees or complicated enrollment.
There are two significant features of this product – no credentialing is required and the applicant plays an active role in the process. In fact, the applicant must give his permission to release a copy of his credit report to the landlord.
The process is done online using secure technologies to safeguard sensitive personal information. The landlord creates a property account and sends the applicant an e-mail requesting the applicant’s permission to release a credit report to the landlord’s secure account. The e-mail directs the applicant to the secure Web site where the applicant must first successfully answer personally identifying questions before proceeding.
The applicant creates his secure account and accepts or declines the landlord’s request. If the request is accepted, the landlord receives the applicant’s credit report in his online secure account. If the applicant declines the landlord’s request, the application is rejected and no report will be sent.
The landlord receives the benefits of no document submission and no on-site inspection. The applicant feels more secure about data privacy and receives the added benefit that because the request was consumer initiated, the request does
not affect the applicant’s credit score.
Choose One
With more options available now than ever before, there really isn’t any reason for a landlord not to take necessary precautions to protect his business and help reduce his risks.
Which credit screening product should you choose? You should choose the product that makes sense for your business operations and your comfort level.