How much attention are you paying to tenant credit scores during the screening process?
Credit can be a problematic issue, generally. People with excellent credit are proud of their score, and rightfully so. People with low credit scores usually have an explanation, and sometimes their reasons aren’t just excused, but understandable circumstances that are out of their control.
You want tenants who will pay rent on time, take care of your property, and stay for the full lease term. While a credit score can be a helpful indicator, it’s only one piece of an innovative screening process.
To make the best tenant decisions for your Hampton Roads rental property, it’s crucial to look beyond just the number and understand what goes into a credit score, what the full credit report reveals, and how to weigh that information fairly and wisely.
Quick Overview:
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Credit Scores Matter in Tenant Screening
Credit scores, typically 300 to 850, are a quick way to evaluate someone’s financial history and responsibility. In tenant screening, a higher score generally indicates consistent on-time payments, low credit utilization, a longer credit history, and responsible borrowing behavior.
These factors can signal that a prospective tenant is likely to pay rent on time and honor their lease agreement.
Using credit scores as a screening tool can help minimize risk and reduce the chance of dealing with evictions, late payments, or property damage. We want to establish a baseline credit score for our standard rental criteria. When we determine that a specific credit score must be reflected in an application before we continue screening, it helps us. It helps potential applicants know whether they will be approved or rejected. Then, we can use the credit score as a starting point for a further screening investigation.
A Credit Score Isn’t Everything
While a credit score gives a snapshot of someone’s financial behavior, it doesn’t tell the whole story. In fact, many high-quality tenants may have lower-than-average scores due to reasons that don’t necessarily affect their ability or willingness to pay rent. Here are some of the things that can influence a credit score to the detriment of an otherwise qualified applicant:
Medical Debt
Medical emergencies are often unpredictable and expensive. Insured individuals can incur significant medical bills due to deductibles, out-of-network providers, or extended treatments. If a prospective tenant has otherwise strong payment history but a few medical collections, they could still be a great renter. Medical debt is often treated differently by many credit bureaus, and newer scoring models even ignore small medical collections. Don’t automatically disqualify someone for this.
Student Loans
Many residents, especially younger ones, carry student loan debt in a military-heavy and education-rich region like Hampton Roads. This debt can weigh heavily on a credit report, but it may not be a red flag if the applicant is making regular payments and their debt-to-income ratio is manageable.
Limited Credit History
Some people, particularly younger tenants or immigrants, may have little to no credit history, not because they are irresponsible, but simply because they haven’t yet access traditional credit-building tools.
Past Mistakes That Are Being Fixed
Some applicants are in credit recovery mode. Maybe they made some mistakes years ago, but are now consistently paying their bills and rebuilding their score. The trend of financial improvement can be a stronger indicator of future behavior than a static number.
Understanding the Full Credit Profile
As a rental property owner, evaluating the full credit report rather than the credit score alone is more useful. Here’s what you should look for when reviewing a complete credit profile:
1. Payment History
This is one of the most critical indicators. How often does the tenant pay their bills on time? A few late payments over several years may not be a deal breaker, especially if they’ve been timely recently.
2. Types of Debt
Is the debt mostly student loans or credit cards? Do they have a history of auto or personal loans with regular payment patterns? These distinctions can help determine whether the applicant is financially stretched or managing well.
3. Debt-to-Income Ratio (DTI)
While not always directly available in a credit report, you can use income verification to estimate this. A tenant with $3,000 in monthly income and $500 in monthly debt payments (excluding rent) has a more favorable ratio than someone with $3,000 in revenue and $1,500 in debt payments.
4. Recent Inquiries
Multiple hard credit inquiries in a short span may suggest financial instability or an urgent need for cash or credit, which can be a warning sign depending on context.
How to Incorporate Credit Screening into Your Leasing Process
Obtaining a credit score is not difficult, as long as you have the applicant’s written permission to run a credit check that delivers that information. When you’re digging a little deeper into credit history and behavior, you might need some technology. We can provide that at Doud Realty Services, so feel free to contact us.
Platforms like Transunion’s SmartMove, RentPrep, and Avail also offer tenant screening services, including credit reports, background checks, and eviction history. These services are affordable and streamline the process legally and securely.
Fair housing laws are going to loom large over every screening process. Be consistent. If you deny one tenant for a 580 score, you should do the same for the next unless there are significant differences in their profiles. Having a documented policy helps protect you from discrimination claims.
Economic Realities and Credit Scores
Over the past two years, many prospective tenants trying to rent homes have felt the squeeze of high inflation paired with stagnant wages, and that financial pressure is showing up in credit scores. According to recent industry data, average credit scores have declined nationwide, not necessarily because people are irresponsible, but because everyday expenses have outpaced income growth.
When the cost of essentials like food, gas, and housing rises faster than wages, many people rely more heavily on credit cards or fall behind on payments. This can quickly impact their credit profile, even if they’ve previously been reliable borrowers or renters. A missed credit card payment or high utilization rate may lower a credit score, but it doesn’t automatically mean the tenant can’t or won’t pay rent.
For landlords and property owners, especially in the Hampton Roads area, it’s essential to recognize that meeting traditional income and credit benchmarks may be tougher for otherwise qualified applicants. Reviewing the financial picture, including consistent income, rent history, and references, can help you identify tenants who will still prioritize rent, regardless of recent credit score dips caused by larger economic forces beyond their control.
What to Do If the Credit Profile Raises Concerns
You’re not obligated to accept every tenant, but if you're unsure whether an applicant is qualified to rent your home due to their credit report, consider a middle-ground option that might give them an opportunity while providing you with peace of mind. For example, you could require a co-signer. Maybe the tenant has a parent or a relative with stronger credit who can co-sign the lease, giving you an extra layer of security.
Some owners will also charge a higher deposit to an applicant with a low credit score. Virginia law allows for security deposits up to two months’ rent. If the tenant is a higher risk, you may be justified in requiring a larger deposit.
Remember: Credit Isn’t the Only Thing That Matters
In Hampton Roads, many renters may have slightly lower credit scores due to military transfers, student loans, or medical bills. These individuals may still be ideal tenants if they:
Have a stable and verifiable income
Provide strong landlord references
Have a history of paying rent on time
Are long-term residents in the area (or have plans that align with your lease terms)
Understanding how to interpret credit scores and reports can distinguish between a successful, low-maintenance tenancy and a costly turnover. While the credit score is a helpful screening tool, it’s not a complete picture. Dig into the credit profile details and consider the broader context of each applicant’s financial life.
Tenant screening needs to be robust and realistic. You’re unlikely to find a tenant with perfect credit. We can help you make smart tenant placement decisions based on credit and other important information.
Contact us at Doud Realty Services, Inc. We provide expert property management in Norfolk, Portsmouth, Hampton Roads, and surrounding areas such as Virginia Beach, Suffolk, Chesapeake, and Newport News.