By Lauren Boston –
Management companies must look beyond credit scores to get the most accurate picture when screening residents.
There’s more to a credit score than meets the eye. Five percent of consumers had errors on one or more of their three major credit reports, and 25 percent identified errors in their credit file that might affect their credit score, according to a February report by the Federal Trade Commission that was based on an eight-year study of the credit reporting industry. Based on this study, apartment owners may want to think twice about making a leasing decision solely on a prospective resident’s credit information. Doing so could allow as many as one-quarter of perfectly qualified applicants walk out the door while apartments remain vacant.
“Any statistical report is subject to serious flaws when data is inaccurate, incomplete or missing-which can often be the case with credit scores,” says Kevin Wolfgang, President and CEO of New Castle, Del.-based Evergreen Apartment Group. “We have found that factors such as previous rental history, length of employment and disposable income can be more important than a credit score.”
As such, management companies are working with screening companies to build a risk model that includes credit scores, but weights them appropriately.
“Most screening vendors will provide an adaptable risk model with endless options that account for a variety of factors that impact the likelihood of a successful resident,” Wolfgang says. “However, property management companies must use their experience, statistics and general expertise to determine which options are activated, the thresholds for the options and how the options are weighted.”