How To Understand A Credit Bureau Report

“How To Understand A Credit Bureau Report” written by Mike Marko

Why should property managers understand a credit bureau report?

Selecting the wrong tenant for your rental properties can cost you thousands of dollars. That’s why it’s good to have lots of information at your disposal to help you make an informed decision. A credit bureau report can be a key tool in helping you make the right tenant selection for your rental properties. 

And understanding a credit bureau report is not that difficult.

Today, I’m here to help you understand a credit bureau report so you can make better decisions in the future.

Understanding A Credit Bureau Report

As a property manager, you need to be aware of the tools that can make your job of finding qualified tenants for your rental easier. The Credit Bureau report is one of the best tools that can help you sort through a large number of applicants. It can help you decide which applications you would like to begin the process of renting the property to. The Credit Bureau report can help you identify the most qualified renters that can pay their financial obligations on time.

Knowing the financial stability of a possible tenant can help you make the right decision, at least on a financial evaluation comparison, to find the most qualified renter to rent the property.

The easiest way to familiarize yourself a credit bureau report is to go online and order your own individual report from one of the 3 major credit bureaus TransUnion, Equifax, Experian.

To help you better understand what and how a credit bureau report helps you in your financial evaluation of a possible tenant, let’s begin with understanding the most basic parts of the credit bureau report

What Is A Credit Bureau Report?

A credit bureau report is a credit report from any of the three major credit bureaus Experian, Equifax, or the TransUnion. These three credit bureaus have the most established financial agreements and partnerships with the major banks, financial, and credit institutions in the country. With access to that information, they can provide a full credit report to its customers.

Three Credit Bureaus

Credit reports from any of the three credit bureau ensure you that you have the information you will need to make decisions based on the financial stability of the applicant applying for the rental.

The financial information provided in the credit reports on your prospective tenants will help you to make a decision if you’re going to accept or reject an applying tenant.

Financial Stability

The credit bureau report helps to serve as a basis for evaluating your potential tenant’s financial stability and eligibility to rent the property you are offering. Financial information and the history of how that person has handled their financial responsibilities can help you analyze the condition of your tenant’s financial status.

It’s important to make sure that the tenant you’re planning to accept has the financial history and capability to regularly pay the rent in a timely manner.

The credit bureau report shows the history of all of the financial loans, credit cards, and bank accounts that your potential tenant has. You can easily determine the tenant debt to income ratio to see if they are able financially and with their current employment pay the financial obligations like rents on time. If the tenant has multiple credit cards and other loans and financial accounts you will be able to see the condition and history of these accounts.

Missing Payments

The credit bureau report additionally provides you with details about any case of financial insolvency or lack of payments or missed payments of the potential tenant’s credit history. Financial insolvency happens when the total liabilities have exceeded the total assets that a person has. When this occurs this makes the person a risky tenant as even before renting your property they are currently unable to pay all of their current financial liabilities.

The credit bureau report provides all necessary financial information about a person’s credit and their history of how they have paid their financial responsibilities. It can help a property manager make better judgments on who to accept and reject based on the financial stability of the possible tenant.

All the necessary financial information is included in an easily readable document that will give you an idea if the potential tenant is someone you can rely on specifically in terms of paying rent.

What To Look For In A Credit Bureau Report

With all the information that a credit bureau report provides, it’s essential that as a property manager you know what information will help you determine the most financially stable tenant to rent the property too.

The tenant’s credit history provided on the credit bureaus report will give you information about the potential tenant’s credit activities as well as their capacity and reliability to pay all his or her responsibilities. This will give you an idea if the potential tenant is responsible when it comes to payment of his rents and dues.

A credit bureau report shows the credit history on the individual and consists of information that you’ll need to look for in a credit report.

Here are suggestions on what areas are most important to evaluate in the credit bureau report:

  • The number and types of credit account the tenant has.
  • The length of time each account has been open.
  • The number of missed payments or late payments on the report
  • Amounts owed by the tenant.
  • The amount of available credit vs the amount that is used by the tenant.
  • If tenants pay bills on time.
  • The number of recent credit inquiries.
  • Bankruptcies, liens, judgments or collections.
  • The credit score assigned by the bureau doing the report

When you evaluate all the areas listed above you will begin to know the financial capacity and stability of the potential tenant. Knowing that the tenant has an excellent history or a bad history of paying their financial obligations on time will help you know if the tenant will do good to for the rental of the property. If the tenant can pay their rent on time then that will help put you at ease.

The credit bureau report helps you to evaluate the tenants capacity to pay their financial responsibilities. Calculating the capacity to pay is easy you take the tenant’s income plus other sources, minus all financial obligations and debt payments. The credit bureau report is the most detailed financial reports you can get on a prospective tenant. The report provides information on the potential tenant financial history that shows his or her capacity to pay any debt or at least be able to settle these debts on time.

Of course, no property manager would want to accept a tenant who delays payments or has shown the inability to fully pay the rent in their past financial history. Evaluating evictions, late rent reports and other items pertaining to past rentals in the credit bureau report greatly helps the property manager in deciding if they should accept or reject a tenant…

Importance Of A Credit Score In A Credit Bureau Report

When you run a credit bureau report that credit bureau will assign a credit score based on their evaluation of the financial history and stability of that person.

The credit score is one of the easiest ways of sorting applications so it actually becomes one of the most important details provided in the credit bureau report.

The credit score or F.I.C.O. score, as it has been named in the credit history, is a numerical value based on the analysis of the tenant’s credit files that represent the tenant’s creditworthiness. The credit score is based primarily on a tenant’s credit report which carries and evaluates financial information sourced from any of the three credit bureaus.

A credit score is used to evaluate the potential risk that will be involved in a property manager decides to accept a potential tenant. The range of credit scores is normally from 300 to 850. When an individual has a 700+ score this means they are financially stable and have the ability and history of paying their financial obligations on time. If the credit score is below 700 that means the applying tenant is a higher financial risk and has a history of paying financial obligations late or doesn’t have the capacity to pay their financial obligations.

In most cases, the credit score helps a property manager decide on whether or not he or she will accept a tenant. A simple look at the credit score can easily sum up all the credit information that is found in a credit bureau report. This score makes it easier for property managers to come up with their final decision in accepting or rejecting a tenant.

As a property manager, it is important to go over all the details of the credit bureau report with the prospective tenant. This way you can ask questions of why they could not pay certain financial obligations or why their credit score is below the 700 ideal score to rent the property.

Often times you will find that tenants are like anyone and sometimes life throws them curves. Sometimes you may accept a client that has a 650+ credit score if their capacity to pay their obligations is not a risk and they have explained why they had the lower credit score.

Remember as a property manager it is always your final decision as to who you will rent the property. So using all the tools available like the credit bureau report can only help you do this job more efficiently and better…

Final Thoughts On Understanding A Credit Bureau Report

In this blog post, we covered how to understand a credit bureau report. A credit bureau report helps a property manager to assess the creditworthiness of a potential tenant. Credit reports from any of the three credit bureaus can give enough information that would be useful for you in deciding to accept or reject an applying tenant.

Selecting the wrong tenant can cost you thousands. That’s why it was important to properly understand the elements of the credit bureau report.




Suggested Articles:
1. The 10 Important Items A Basic Lease Agreement Should Cover
2. A Simple Overview About Rental Lease Agreement
3. How To Use Tenant Screening Services For Your Properties

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Author: Mike Marko
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Disclaimer: This commentary is a matter of opinion provided for general information purposes only and is not intended to be taken as investment or trading advice under any circumstances. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses any person may incur as a result of this analysis. Individuals should consult with their personal financial advisers. By using this website or any information contained in it, the user specifically and expressly agrees that no advisor-client relationship is created between said user and any author, owner, executive, or principal of this web site by either use of this web site, or by any information, product, or service offered by or on this web site. No express or implied guarantees or warranties as to investment or trading results are made, and any perceived insinuations of such are hereby expressly disclaimed.


Article: How To Understand A Credit Bureau Report

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