Renters & Credit Trends Part 1: Credit Check-in

Anyone who has ever rented an apartment knows that a credit score is one of the most important qualifiers property managers use when making a decision to offer a lease to a prospect.
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Anyone who has ever rented an apartment knows that a credit score is one of the most important qualifiers property managers use when making a decision to offer a lease to a prospect. While renting and credit have always had a connection during the lease approval process, it wasn’t until paid-as-agreed rental payment history data was added to credit reports that renters could build their credit history after a move-in by paying their rent on time.

In a recent study of nearly 755,000 leases initiated over a six-year period, between March 2006 and December 2012, Experian® RentBureau® discovered compelling differences in renter default rates and resident age demographics as related to VantageScore® credit scores. The study, which examined trends at 12,000 Class A and Class B properties across the country, established average VantageScore credit scores for renters of Generation Y (ages 18 to 29), Generation X (ages 30 to 45), baby boomers (ages 46 to 64) and the silent generation over the age of 65.

Perhaps not surprisingly, renters are much more likely to be younger, and more than half (51.46 percent) of applicants in the sample set were from Gen Y, underscoring how critical this prospect audience is in the current rental market. By comparison, another 30.29 percent of renters are from Gen X, only 14.61 percent are baby boomers and a mere 3.64 percent are members of the silent generation.

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When it comes to credit scores, most renters show a notable difference when compared to the broader U.S. population. The exception to the rule is with renters from Gen Y who showed slightly higher credit scores at a 678 data set average VantageScore credit score versus a 672 U.S. average. The score difference was greatest for the silent generation, which had an average VantageScore credit score of 759, compared to a national average of 782.

The correlation between age demographics and credit scores (with differences as compared to the U.S. population generally becoming greater as renters age) becomes more intuitive when one considers that many of the individuals in younger age groups are indeed renters.

Still, when compared with the distribution of credit scores in the U.S. population, multifamily residents tend to have lower credit scores and consequently represent a higher risk group to owner/operators of apartment portfolios. As the analysis revealed, 85 percent of the rental applicant population is in one of the three lowest VantageScore credit ranges (501 to 799), compared to a national average of only 64 percent.

Property managers who are qualifying renters are best served by looking at credit scores and rental payment history data to determine best a prospect’s financial ability to meet rent obligations in full and on time. As the multifamily industry continues to embrace the accessing and reporting of rental payment history data, leasing pros and portfolio managers alike are gaining a more holistic view of the lifetime customer value of every prospect that walks through their leasing office doors, regardless of their age.

Editor’s note: This is part one of a three-part Multi-Housing News series on renters, credit and rental payment history data.

Emily Christiansen is director at Costa Mesa, Calif.–based Experian RentBureau.