HOW DOES YOUR TENANT SCORE. A LOOK AT CREDIT SCORING AND SOME COMMENTS ON ID FRAUD
All landlords should rely on credit files and credit scoring to give them a more complete picture of a tenant says David Lawrenson of LettingFocus.com
But what’s really behind the scoring process? Why do some good people get low scores when their credit file is searched?
And why do some financially stretched people get good scores? What other information should landlords ask tenants for in order to flesh out the scoring process?
This article looks at how credit scoring works and also at how landlords can avoid becoming victims of identity fraud perpetrated by otherwise plausible looking tenants.
BASIC CREDIT FILE CHECK
You can do a basic credit reference check on a tenant for less than £15.
Normally, the credit referencing company provides you with a form on which you provide the full name and date of birth of the prospective tenant as well as addresses over the last three years. The tenant will have to sign to give their consent for you to do the credit check.
The credit reference report will usually include a credit score which can be used to assess whether the tenant is a good risk. The report should also tell you whether they have something negative in their credit history, like a county court judgement.
The score is basically a reflection of how a person runs their finances. Anyone who owns their own home and has accounts on which they honour their commitments will have a good score.
However, someone else who is highly indebted with lots of accounts can get a good score just as long as they are just meeting their repayments.
Young students, who have been renting for a few years, haven’t bothered to register on the voters’ role and who have applied for lots of loans will tend to have a low score.
Another group with low scores are foreign nationals who have recently moved to the UK from a country with no credit data history.
COMMON SENSE NEEDED TO INTERPRET CREDIT SCORES
Therefore you need common sense to interpret credit scores and be prepared to read the score together with other information.
The key to remember is that credit referencing and credit scoring is just one part of the whole tenant referencing process - the purpose of which should be:
1) to check the person is who they say they are
2) that they can afford the rent and
3) that they have honoured past commitments
The starting point for reference checks should be to get each prospective tenant to complete and sign a tenancy application form which should contain a statement giving you permission to carry out credit checks and seek references from employers and previous landlords.
Even if you use a letting agent, you should check the agent is doing this kind of tenant vetting properly and using their professional judgement. Many don't and I know many landlords who got a tenant from hell from a letting agent they thought they could trust.
ASK FOR PROOF
You should ask for documentation providing proof of:
1) current and previous address
2) entitlement to work in the United Kingdom (Non EU nationals only)
3) identity
The more information collected on the tenancy application the better, because should the tenant subsequently abscond, this can be used to give vital tracing information. In addition, should the applicant make false statements, this document provides evidence for eviction under ground 17.
CREDIT FRAUD
Landlords should take care to ensure that all post for them is redirected to another address. This should include final utility bills. And never, ever leave any personal documents in a property because a bad tenant who is intent on fraud can use bills addressed to the landlord to get credit in their landlords name and set up false accounts.
If you buy a property which has been repossessed you'll need to make sure that whoever repossessed it changed all the locks. The same goes for any property which you buy which you think may have had previous occupiers who were not model citizens as you will not want them letting themselves back in.
ABOUT DAVID LAWRENSON AND LETTINGFOCUS
At LettingFocus.com our main work is our consultancy. We help organisations and public bodies with their products and services for the private rented sector.
If you are from an organisation or the media please go to our home page: LETTING FOCUS HOME PAGE.
But in addition to our work for organisations, we also offer a limited amount of unbiased consultancy advice for private landlords.
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Copyright 2011 David Lawrenson. This article must not be copied or re-used without the author and copyright owner’s prior permission.
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