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The Importance of Credit Checks for Property Managers

As a property manager, your number one goal is to secure reliable tenants for your landlords.  To achieve this, your company will produce delightful marketing, provide quick and efficient maintenance and repairs, and create web portals for accessible rent collection and requests to entice the cream of the crop.  The one thing you have no control over, however, is who fills out the application.   Tenant screening can be challenging to navigate, but with the right procedures in place, you’ll be able to weed out those who aren’t able to keep up with the rent you set based on your thorough market analysis.  The best way to find out if a prospective tenant will fulfill the terms of their lease is to review their finances via a credit check.  A credit check allows you to

1)    Consider each applicant indiscriminately

2)    Base your consideration on previous and current payment history

Choosing the right agency to conduct the credit checks on your rental candidates is just as important as running the check itself.  By partnering with CNet Technologies, however, you can trust your candidates’ information is in good hands.

What Information Can Be Found with a Credit Check?

Depending on how thorough the credit check is you can see a wide range of financial information on the potential renter.  A credit check can include some if not all of the following information:

Identity Information

With a credit check, you can verify someone’s identity.

Credit History

Usually in the form of a standard credit report that you can gain as a consumer.

Public Records 

Evictions, bankruptcies, tax liens, and possibly judgments. These can be red flags, but they can also show financial growth.

Inquiries 

Who was the last company or person to pull the candidate’s credit.

Credit Scores

Known also as a FICO score. Most properties want a minimum score of 600-620.

With CNet Technologies you’ll gain all of these facets of your prospective tenant’s finances and more if you wish.  CNet Technologies also runs background checks, though you should use this information carefully to avoid potential discrimination lawsuits.Person writing a on paper credit check form

How Do I Analyze This Information?

The financial information you gain on each potential renter may seem overwhelming, but if you look for crucial aspects, you’ll find that you understand the general history that’s laid out before you.

Red Flags

-    Chronic late payments

o     Everyone makes mistakes when it comes to paying their bills, but if your prospective tenant makes a habit of paying bills late or not at all, especially their rent you may end up with an unreliable renter.

-    Unpaid accounts

o     To have a credit history, you need to have various lines of credit like credit cards and auto loans.  However, having multiple balances could mean interest taking over monthly payments elsewhere.

-    Bankruptcies

o     Bankruptcy drags down a person’s credit for years and years, but it’s able to be built back up.  If it hasn’t been built back up, then you’ll have to question why the person isn’t able to do so.

-    Eviction history

o     This flag is as red as they come.   You’ll want to contact the previous landlord if possible about the eviction.

-    Judgments

o     This can range from child support to criminal activity.  Be wary of basing your own opinion on this.

-    Large amounts of debt

o     To pair with the unpaid accounts, if there is a large amount of debt the renter’s money may be promised elsewhere even if their credit score is top-notch.

The last of these red flags is an excellent example of why you want to pull credit reports for each applicant. Paying off one’s substantial debt in monthly installments on time proves that the potential renter is responsible. It can also show that their debt-to-income isn’t where you would prefer it to be.  

A person’s debt-to-income ratio is just that: what kind of debt is a person trying to pay off with their incoming funds. Debt-to-income or DTI is best when the renter has wiggle room (the wiggly the better) after all of their monthly bills are paid so they can eat, get to work, and go out on occasion. If a candidate is chipping away at a large mountain of debt, their credit score can still be stellar but whether you’ll get your payments on time and in full could be questionable.

Green Flags

Now let’s double check those red flags – are they truly bad omens or does the customer show financial growth recently?  Most “green flags” are going to be the opposite of what’s listed above or the absence of those things. A perfect prospective tenant will have a squeaky-clean record, few open accounts, no bankruptcies, judgments, or evictions, and a well-balanced DTI. Because life is messy and things happen though, you’ll want to examine the red flags a little more carefully.

Use bankruptcy as an example: your applicant had a bankruptcy seven years ago. Bankruptcy and all of the incidents leading up to filing make your credit score plummet. But, your applicant shows a good credit score of 700.  This applicant has worked diligently to build their credit back up and has proven responsibility after a size-able financial mishap.

Other instances would be if a potential renter’s last late payment was four years ago or if their more significant debts show low minimum monthly payments such as on a student loan repayment plan.

Crunching the numbers is one of the most objective ways to determine which applicant you rent the property to, but that doesn’t make it black and white. Analyzing the trends could prove one candidate to be more financially responsible than another even if it doesn’t seem to on the surface.

Why is a Credit Check Important?

Credit Score words on puzzle pieces

As mentioned previously, credit checks are a great way to see the full scope of a prospective tenant’s financial past and present.  By basing your decision on an applicant’s finances, you also avoid the risk of discrimination.  We’ve demonstrated how pulling financial records aren’t black and white; a prospective tenant can show growth after a financial pitfall such as a bankruptcy or a car repossession.  By running a credit check on every applicant, you’ll have a better idea as to whether they are reliable renters who will pay on time.  Reliability often seeps into other aspects of tenants’ behavior like cleanliness and valuing your property as much as the owner does.  

Equally important to running the credit check is which company you run it through.  CNet Technologies sees itself as your risk management partner. As your partner their value and reputation are tied to yours, making each of your applicants their applicants. With screening companies popping up everywhere CNet Technologies knows it must build trust and ongoing relationships with each of its partners and they provide themselves on being the best in verifying correct information and rooting out frauds.  Your property management company needs to be able to rely on the credit checks they receive. Contact CNet Technologies today to set up a consultation and start getting the best information for your landlords!

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