Most landlords want to know how they can predict if an applicant will skip out on their lease explains Peter Decaprio. Unfortunately, there are no magical numbers that determine someone’s trustworthiness; however, there is a way to predict who is more likely to default. It all depends on your credit score.
Here is how to understand Your FICO Score:
- Landlords may use someone’s credit history as an indicator of whether or not they will fail to pay their rent. If someone has paid bills late in the past, they may do so again (on your property) leaving you stuck with an empty house and a serious financial loss.
- Before you can make any judgment on an applicant’s credit history, however, it is important that you understand what all those numbers mean on your credit report. That number range from 300 to 850 is critical for landlords trying to predict if an applicant will follow through with their payments or leave them hanging dry.
- There are three major components of a FICO score: payment history, amounts owed and length of credit history. Let’s take a closer look at each part because understanding them can help out potential deadbeats before they are handed the keys to your property.
- Payment history is 35% of the score and it contains information about if an applicant has paid their bills on time, including all other accounts like rent, utilities, mortgages or any other loans they may have. The more payments that an applicant can show you successfully made without being late, the better for them. They should be able to provide at least six months worth of bank statements to prove that their payment history is above board says Peter Decaprio.
- Amounts owed makes up 30% of your FICO credit score. This section shows how much money someone owes across all lines of credit (including mortgages). If this number is high, applicants may be financially strapped which means financially strapped which means they might not be able to pay their rent on time.
- Credit card usage makes up 15% of your credit score. This section shows how many accounts an applicant has open and what they owe on each account individually. If someone is a regular customer at a department store, it may be worth considering if they’ve always been financially responsible with their spending habits.
- Length of history makes up 15% of the total FICO score which means that this section is not very important to landlords since most landlords will only be looking at applicants during a six month window anyway. The longer someone’s credit history is, however, the easier it is to predict what kind of tenant they will be since more information about them becomes available over time. It also adds depth to payment history. Which can be helpful if someone has only been using credit for a short period of time.
- In the end, it all comes down to numbers. If someone has great credit history, they are more likely to be a good tenant. And will probably be able to offer you proof. That they have excellent payment history and amounts owed on their accounts. Which means that your rental property is less likely to stand vacant for long periods of time.
- If you’re considering an applicant who does not meet these criteria (and who isn’t willing to co-sign). Then makes sure you do as much research as possible beforehand so you can assess how risky it might be. For more information about FICO scores or other ways to rent out your properties.
Conclusion:
It’s no secret that Credit Score is an important indicator of how financially responsible someone will be says Peter Decaprio. Landlords can use this number to determine whether or not someone is likely. To pay rent on time and if they are the kind of person you want living in your rental property.
Your FICO score is very important when it comes to being a tenant. If you have a low credit score, landlords are less likely to give you an apartment or house. You can get your free credit report from Annual Credit Report.
That’s the article on How Landlords Use Your Credit Score to Assess Risk and Predict Default. I hope this article could be useful to many readers that might want. To know exactly what FICO scores are, how they work and how they impact potential tenants’ ability to rent properties.