Just Like the Book Covers They’re Always Telling You About!
Across the course of human history, there have been a lot of things that people just flat-out didn’t understand — and unsurprisingly, those things have had a tendency to create the most bizarre myths and stories. We blamed lightning on Thor and/or Zeus, the appearance of flies on the theory of Spontaneous Generation, and Smells Like Teen Spirit on the notion that Kurt Cobain had, at some point, smelled a girls’ deodorant. All since disproven, but the stories linger on — as do a vast amount of equally fictional tales about credit scores, what they mean, and how they work.
It’s easy to assume, as a property manager performing tenant screening, that a credit score is exactly what it claims to be: an accurate assessment of a person’s “creditworthiness” — in other words, the likelihood that they’ll pay back their debts in a timely manner. And if getting paid on time is your big concern (which it is for most of us), it might seem like looking at someone’s credit score will tell you everything you need to know — but like lightning and Nirvana, nothing is as obvious as it seems at first blush.
There Is No “Credit Score”
You can’t ever actually get a single ‘credit score’ for an individual. That’s because every person has dozens of credit scores. There are only three national credit-score-keeping companies — Equifax, Experian, and TransUnion — but that doesn’t stop tons of other, smaller companies from creating their own credit profiles of individuals and promoting their use.
Moreover, it’s not uncommon for the three major companies to disagree, sometimes dramatically, about a person’s creditworthiness. Sometimes information about the wrong person will get submitted to an individual’s report, and they’ll end up with a score 20 points lower on one profile than on the other two. There’s also the issue of which creditors report to what bureaus – if any.
Review Tradelines & Patterns
When you get a credit report, you want to look at the actual tradelines and see when the history of late payments, collections, chargeoffs – everything. If the system you’re using to access applicant credit with doesn’t provide individual tradeline information, you’re actually not seeing the full “Matrix”. We’ve seen applicants with high credit scores solely due to student loans in deferment. We’ve also seen terrible credit scores solely caused by an isolated series of late payments. Get an actual credit report and learn how read it and understand the patterns.
Ask prospects to explain what you’re seeing on their credit report. Sometimes there’s a perfectly logical and provable reason for credit issues and the resulting low score. One thing we do to test applicant honesty is to ask them what we’re looking at when we have their credit report in front of us. We don’t tell them what we see on it, we want them to tell us what’s there. People know what’s on their credit reports these days. Everyone is allowed a free credit report annually from each of the three main bureaus we mentioned above. You would really have to try, and try hard, to not be aware of credit issues in today’s information age. So. if an applicant is elusive or tries to “play dumb” with us when we ask them what’s on their credit report, then they’re probably not a good risk. Those that are honest on the other hand, we consider better risks – although honesty does have its limits! We once had an applicant tell us there were three evictions on their credit report and then proceeded to tell us how none of them were their fault – not!
You might also want to look for patterns that show that either an applicant is consistently late or that there was a financial setback or two that caused problems during specific times. Which do you think is a better risk?
So all things considered, a credit score should be taken as little more than a guideline to someone’s credit history. A credit score is actually a statistical probability of someone making their payments in a timely fashion and not defaulting. In that regard it’s no different than investing in the stock market. That’s why what’s actually on the pages of a credit report is always more important than just the “cover” score.