Credit Reports & Credit Scores

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Over the years we have relied on the credit report as being the most objective piece of information used to qualify tenants.   The information we receive from the credit reporting bureau has been invaluable in making decisions about whether or not to recommend a tenant.

It is common now in industries extending credit to operate solely off a credit score.   Credit scores are complex formulas that take into consideration many different factors on the credit report and assign a number to establish a person’s credibility.     A benefit of credit scores is that a company can establish a standard by which they extend credit which helps in preventing discrimination claims based on credit.

While credit scores have their merits, they are not perfect.   They often penalize credit worthy people whose actions do not fit the formula.   An example would be the conscientious consumer who closes accounts no longer in use.   This sounds like a good practice, however by closing older accounts, the formula considers that this consumer has a shorter history of credit and therefore lowers the credit score because of that.

The solution to this complex formula for American Heritage Properties is to not use it.   Our strategy is to evaluate the entire credit report and to make recommendations based on a person’s credit history, as opposed to a number.  

When evaluating a credit report we review length of established credit, number of accounts, delinquencies, amount of debt, percentage of credit used, number of inquiries, type of inquiries, as well as a number of patterns that are established.   When reviewing the entire credit report we are able to get a much better perspective about a tenant’s future payment pattern.  

What about bad credit?   Wait til next week….