Hello & welcome to THE DAVE SHOW! Today, I’ll be discussing how analyze someone's credit score and see how we review it for tenants. We’ll be answering the questions of why you shouldn’t judge a book by it’s cover and how to dive deeper into someone’s credit score. Hopefully this will give you a great insight on choosing your next tenant.
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Now, this is a scenario that actually happened with one of our property managers. They wanted to pick a particular person for a certain reason. But he only looked at the surface and didn’t dive deeper, so I'm going to dive in as to why I said no.
Two scenarios, one potential tenant is a 65-year-old male on pension, with a credit score of 703, which is decent. The issues arises in his collections. He had collections for a car payment in the amount of about 30k or so. This is a red flag, not to say that any and all collections are treated equal however, this was in the past 12 months. Now, if this had been a few years ago, everyone makes a mistake and I would not have cared. But it’s so fresh and the fact that this person was OK, not paying a bank, a financial institution. What does that say about them. when it comes time to pay rent to us, if they're not willing to pay a bank? So this was a big red flag to me. But other than that, good credit score, solid income. Someone who’s older, quieter, and less likely to cause problems.
The second potential tenant is a twenty-five-year-old female credit score 619, which is a little lower than we'd like to see, had two jobs and nothing in regards to collections. She had some credit card balances, but all the payments were made so no collections with a good reference from previous landlords.
The property manager suggested we go with 65 year-old male as he’ll be quiet with good credit score and solid pension. His suggestion was heavily based on the credit score and the income. But this is where we dive deeper. The 25 years old female had no collections, 2 jobs, but he made a decision based on her credit score. He was just comparing the two credit scores. But the older male had a collection about 12 months ago for a car payment and it was a lean on them with a bank. That's what I explained to my property manager, that scares me, it's too fresh. It would be a totally different story if it was 2+ years ago. But this was the thing that made me say no to this tenant. I would rather take someone with a lower credit score that has two jobs, has nothing in collections and has a good reference.
If you're going to be a real estate investor, a landlord, a property manager, or have anything to do with income properties, you're going to pull up credit checks for possible tenants. You have to dive deeper, Mel and I had over a thousand of tenants now over the years. We have rented to people that have had past collections, but we've had the conversation with them. They explained their situation to use, separation from a spouse, went through a hard time and I couldn't pay credit card, but things are better now. These are understandable circumstances and we can get past these things.
You need to take the bigger picture, credit score, income, collections and reference check. Don't just look at the number. This was a quick tip on how to read a credit report from a tenant. If you found value in what we discussed today. Give me a like and subscribe to the channel. I greatly appreciate it. I'm Investor Dave, and I'll see you in the next one.
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You’re watching The Dave Show from Investor Mel & Dave - where we teach Real Estate investing strategies & give tons of tips on how to buy multifamily properties using NONE OF YOUR OWN MONEY & WITHOUT JOINT VENTURE PARTNERS! We’re not just talking the talk here... we own 200+ units/30 buildings & we bought them using our strategy. That means we keep 100% of the cash flow, appreciation, & equity! I hope you enjoyed this episode of The Dave Show! Thanks for stopping by! If you have any investing questions or want me to cover a specific topic, let me know in the comments section below! Chat soon!
