It makes no sense for landlords and rental agents to waste time, effort and money on tenants who will damage rental properties, default on monthly payments or stop paying altogether.
The key to avoiding these tenants is properly assessing applicants through credit checks and other means before placing them in a property you own or manage.
Credit checks
Higher risk tenants usually have more ‘bad debt’ accounts and fewer ‘good debt’ accounts than less risky tenants. So, when carrying out credit checks, you must distinguish between good and bad debt.
Credit Provider Association (CPA) accounts include insurance, mobile phone contracts, retail stores and vehicle finance. These are the type of accounts that most creditworthy consumers have. They help to establish a good credit record and can be viewed as good debt.
National Loan Register (NLR) accounts include short-term loans from micro-lenders. They are usually repayable at very high interest rates and are considered to be ‘bad debt’. Most people who borrow from micro-lenders do so because other financial institutions such as banks consider them high risk borrowers and turn down their credit applications.
There is usually a correlation between the degree of risk presented by applicants and the number of credit enquiries carried out through various institutions. When credit checks reveal that potential tenants frequently apply for credit, it could be a sign that they cannot get by on their earnings. It may indicate that the credit granted initially wasn't sufficient or that their credit application was turned down, leading them to re-apply elsewhere.
However, there are exceptions to this rule. For example, applicants may have been shopping around for the best interest rate for vehicle finance.
Risks
Most accounts are payable monthly, usually by a set date. Failure to make timeous payments will negatively affect a credit score and should be a red flag to anyone considering placing a tenant.
Sometimes several cellphone numbers or addresses can signal that applicants are attempting to avoid debt collectors.
As a landlord, managing your risk concerning tenant placements should be a top priority. Reputable rental agents have access to a host of tools that enable them to vet rental applicants thoroughly. Even if you decide to manage your own property, having applicants verified by a rental agency before they sign a lease will be money well spent.
Writer : Sarah-Jane Meyer