Understanding credit records

You wouldn’t dream of taking on a tenant without first checking up on their credit history, but plenty of landlords don’t really understand the nuts and bolts what a credit record means and how to use it when screening would-be inhabitants. A good credit record doesn’t always mean a good tenant and, likewise, a bad record doesn’t mean a bad tenant. Here is a quick guide to what the agencies assess and how to use it when determining if a person is right for you…

The Rating

Depending on the agency you use, the rating will probably range from ‘excellent’ to ‘very poor’. It’s important, firstly, to understand what the scale is, and then you can place tenants appropriately. A ‘good’ rating, though not perfect, probably means your tenant has a long history of timely payments, possibly marred by an occasional banking error or a missed bill.

Determining a Rating

Agencies use a number of measures to determine a rating and most will be relevant to you: bank history, payment of bills and credit usage will all be important. There is something to look out for hidden amongst the numbers, though: most credit agencies will include a measure of how long a person has lived at previous addresses. This does give you a good indicator of past history but should also be taken with a pinch of salt: remember your potential tenant is looking for a new place and so may well have a short spell at a previous address!

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New Ratings

One of the trickiest groups to judge either positively or negatively are young tenants. Often graduates will have had few credit cards, little history with bills or payments and lots of short-term addresses. What really matters about graduates is if they have steady employment: if so, it’s reasonable to expect them to pay on-time, but it’s always worth taking out Rent Guarantee Insurance to be sure.

A credit rating is just another piece of information that might be useful to you as a landlord and its score needs to help you determine whether this person is a reliable tenant. Enquire about potential problems, interview your tenants and make sure your iron out any problems: it’s not good management to reject an application based only on one iffy credit score.

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