Credit scores can often feel like a race that you were enrolled in without your knowledge. For landlords, understanding credit scores is an important part in successfully screening tenants. When you are considering younger applicants, credit scores can be tricky. Young applicants haven’t had time to run the credit race for very long, and often, even if they haven’t done anything negative to their credit score, they simply do not have one for you to inspect.
Which leads a lot of landlords to the question, what credit score does everyone start out with? Do we all start out with perfect credit scores, low scores, or no scores at all? Read on to find out how credit scores are built and what credit score every person starts with.
Building Credit One Stepping Stone At A Time
A credit score is a number built upon the analytics of past behavior found on your consumer report. By utilizing this data, your credit score acts as a predictor of whether or not you will be delinquent in the future. Before a person has anything on their record to analyze, they simply have no credit score. There is no magical age at which a credit score is given to you. A credit score is created only when there is data to analyze.
Everyone begins without a credit score. However, once there is data to analyze, what score will someone start with?
It will require six months of history in order to create a person’s first credit score. Credit scores generally range from 300, the lowest possible, to 850, the highest possible.
Generally, most people will begin with a middle of the road credit score. However, this will be largely dependent upon a few factors. The following are different scenarios that will determine what someone’s first credit score will be.
A short history and few accounts
When someone is first building their credit, if they only open one account and they have a short history to pull data from, they may have a relatively low credit score. In this case, even if they have been making payments on time and have no negative behavior, they may pull a mid-range score. This is because, with such a short history and only one account to analyze, the data is insufficient to project a higher number. Essentially, how can there be certainty someone will keep paying on time when there has only been a short amount of time to analyze their behavior.
A short history and poor payments
If someone starts out their credit history with missed payments or other negative factors, they can start with an extremely low score. With a short history and missed payments, the forecast of how that consumer will behave moving forward is considered negative.
How To Handle Young Credit Scores
As a landlord, when you are screening tenants it can be difficult to determine if someone who is young and has a new or non-existent credit score will be a reliable tenant. Credit scores aid landlords because they are often a good indicator of how responsible someone is with paying their bills. However, when you are renting to someone with a new credit score, you are left with more guesswork. Even if someone has a middle of the road credit score because they just started building their credit, it doesn’t mean they are irresponsible. It is simply too early to tell via a number.
The best way to handle new credit scores or non-existent scores is to ask for a co-signer. This method is often employed by those renting to college populations. It is also important to note that your tenant screening process should include more than just a credit score. Run a background check as well to look for other indicators of the applicant’s responsibility. When you ask for a co-signer, screen the co-signer the same way you would a tenant.
Screen Your Tenants Thoroughly
While credit scores are not a perfect indicator of whether or not a tenant will pay you on time, they are part of a thorough tenant screening process. Be sure that you use a tenant screening process that provides you with both a credit score and a background check. As an added measure, you can also run a screening report that pulls any eviction history as well.
DISCLAIMER: Turbo Tenant, LLC does not provide legal advice. This material has been prepared for informational purposes only. All users are advised to check all applicable local, state and federal laws and consult legal counsel should questions arise.