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They have special credit scores, the so-called “sophisticated” lenders.  In fact, Fair Isaac (FICO) even offers industry-specific scores for mortgage lenders (FICO Mortgage), auto lenders (FICO Auto) and credit card lenders (FICO bankcard).  Other lenders can ask FICO to give more or less weight for different factors important to their industries.  The reason for this weighting is that a basic credit score doesn’t “directly reflect income or all existing monetary obligations, which obviously contribute to the affordability of a new loan or line of credit,” wrote Odysseas Papdimitoriou on Dec. 6, 2016 in USA Today.  In other words, the generic score we get isn’t the same as the score that “sophisticated” lenders get.


John Ulzheimer, president of consumer education at SmartCredit.com and a former credit manager at FICO pointed out, “I care how you pay your auto loan for my decision, but I really care about how you pay your auto loan if you’re applying for an auto loan.”  By the same token, we care if you pay your rent on time, but we really care if you pay your rent on time if you are applying to rent from us.


How do these “sophisticated” lenders set their systems up?  They won’t tell because it’s considered proprietary.  Even so, we can create our own “proprietary” scoring system. Mostly creating our own system involves adding and subtracting for different factors, possibly with a point system.  Even though there’s no FICO Rental Property or FICO Employer, we can create a point system that will predict the quality of applicants.  I’ll tell you one additional advantage of creating our own system in a minute.


Below I am suggesting how this might work.  It is not prescriptive because I just made it up as I went, so you can give weight to the different factors in a way you believe is most appropriate.


A points system takes away the subjective measure of how well we can expect a tenant or an employee to perform.


Two years at one residence: add 10 points

More than one year: add 5 points

6 to 12 months 0 points

Less than 6 months: subtract 5 points


Two or more years on the job: add 10 points

One to two years on the job: add 5 points

More than six months: 0 points

Less than six months: subtract 5 points


Use the same formula for previous employers, add 10, add 5, add 0, or subtract 5.


FICO score:

640-679; add 5 points

680-699: add 7 points

700-plus: add 10 points


Good references (employer or landlord), you decide what constitutes “good,” add 10 points.  Derogatory references, subtract 10 points. (Maybe that’s not enough, you decide.)


Debt-to-Income Ratio:

30 percent or less: add 10 points

40 to 50 percent: add 5 points

50 percent: 0 points

More than 50 percent: subtract 5 points

All bills current: add 10 points

Fewer than three 30 days late: 0 points

Three or more 30 days late or any 60 days late: subtract 10 points


Bankruptcy as seven years: subtract 20 points


Rent always paid on time in past year: add 10 points

Rent late once in past year: add 0 points

Rent late two or more times in past year: subtract 10 points

Eviction in past five years: subtract 20 points.

Rent payments are important for employers, too, since an employee who is evicted may not be as effective an employee as one with a stable home.


Can’t verify any information on application: subtract 100 points


Using those criteria and points, what would be a total that would indicate a “quality” applicant?  There are a total of 80 possible points for 100 percent, so maybe 55 points, about 70 percent, could work.  Lacking anyone with at least 55 points, using the demographics of your typical applicants you would have to decide what point total is acceptable after that.


Here’s the advantage I mentioned earlier.  If you reject on the basis of a credit report or score, you have to inform applicants where the information came from and allow them to dispute any derogatory information.  Not so with “an underwriting system that considers one or more factors in addition to credit information,” [emphasis mine] says the Final Rule of the Federal Reserve System in regard to 12 CFR Part 202 on July 15, 2011.


That means that you might not reject on the information in the credit report you received but would on the points you attached to length of time on the job, an eviction, or inability to verify information on the application. None of these would be an integral part of a credit score unless the eviction showed up as a judgment.  But certainly a debt-to-income point scoring doesn’t rely directly on a credit report but only on your point add-ons involved in your decision-making.


But do you want to reveal your system to applicants?  It’s up to you.  But what you most likely will have done is set up your own acceptable criteria for renting or employment.  For example, you can say in your rental policies and standards that you regard at least two years at a previous residence and at least two years on the job as acceptable figures.  But just because an applicant has neither doesn’t necessarily mean he or she won’t measure up as a tenant or employee.  You have simply weighted those criteria along with the others you consider such as how the applicant conducts him or herself in an interview.


What are the most important factors to you when you assess the quality of a prospective tenant or a prospective employee?  You decide and assign weighted measures for those factors just like the “sophisticated” lenders do.


By Robert L. Cain

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