Credit Score and Delinquency Rates
A delinquency is a payment that is overdue. A delinquency rate is a percentage of the total loans that are past due. Many times you will see this reflected in a credit (FICO) score.
But what do these numbers mean?
How much better is a 750 credit score then a 650?
How should I use these numbers?
Well you're in luck, I'm here to show you how to read, understand and assess what is right for you.
Property Managers and investors use this information to assess the risk of a potential applicant. The higher the (delinquency) rate the more risk for a landlord as the applicant is more likely to forfeit and/or be late with payment. The higher the credit score the less risk associated with that applicant.
In the graph you will see that applicants with a credit score of 650 to 699 have a 12% delinquency rate, while appliance with a credit score of 700 to 749 have a 5% delinquency rate. Now these numbers don't mean that the money will not be paid or will be late. These statistics are here to outline and help you gauge your applicants and the risk involved.
Another important factor to reference is how much of the population these numbers reflect. As you can see below 27% of the population with a FICO score has a credit score of 750 to 799.
If you look further into the numbers you will find:
86 % of the population has a credit score of 650 or better,
75% of the population has a credit score of 700 or better, and
56% of the population has a credit score of 750 or better.
Please keep in mind that this does not necessarily reflect tenants and renters but the population in general. Now you may be asking yourself what does this mean to me and it always goes back to why people rent in the first place.
People rent for many different reasons but more often than not people who plan to live in an area and can afford it, will purchase a home, while other people rent. You may not ever see an applicant with a credit score of over 800, but all of this will depend on your property and the target market.
Now of course, the most important question is how should I use these numbers. These numbers are here to assist with your risk of owning a rental property. Be practical and keep these few pointers in mind:
CEO's are not going to rent your basement apartment – so know your target audience.
The higher the credit score the better the applicant – this doesn't mean you should draw a line in the sand and state that anyone under 700 is not accepted as this number will more likely depend on the property you are offering.