Starting this past Saturday (July 1st), a series of new credit score rules hit and people may already be noticing the difference in their scores. These changes affect all three of the major credit reporting databases, and we’ve written several posts discussing the new VantageScore approach and how it differs from FICO scores, if you’d like to review those posts. Those differences are playing a role in the new changes, which include the exclusion of many civil debts and tax liens.
According to a report by Fair Isaac, roughly 7 percent of the credit-holding population will have a lien or judgment removed from their file, and those people could see up to a 20-point improvement on their credit score. In the near future, this means that we’ll likely see a lower cost of borrowing, which means many consumers who put home and moving plans on hold until they could secure necessary funding will be able to access the market again. On the flip side, with more borrowers accessing better terms, lenders may start increasing interest rates for other borrowers later down the line.
What is This New Credit Score Criteria
This new criteria is happening in part due to a report from the Consumer Financial Protection Bureau (CFPB) that recommended changes to protect consumers after noting some problems within the credit reporting industry. Most people will only end up seeing a minor or no impact on their score, but for others, it could mean the difference between qualifying for lending or not.
What does this mean for you as a landlord?
Some consumers may be making life changes that they were putting off, such as moving to a better apartment or purchasing a car. From your perspective, you may see an influx of people who previously had a lower score now applying for your units because they qualify. This is all good information to keep in mind as you look through applications, and why it’s still important to get a full credit and background screening. In the posts linked above, we went into detail about how and why you should check a credit score, and how to read between the lines to determine what a score really means. Certain behavior indicates problems, while other behavior and history indicates someone went through a rough patch that they’re currently recovering from. One may be a problem tenant while the other may be trying to get back on their feet.
As always, we recommend our RentalConnect program, which offers property owners and landlords a great alternative to the expense of full tenant screening. This service requires no on-site visit, sign-up, or membership fees, making it extra convenient. The service fee is paid by the applicant. Available 24/7, RentalConnect is fast, easy, secure, and delivers reports needed to make an informed decision, including a credit report, a national criminal search, and a national eviction search. Reach out to us for more details!
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