It’s not easy for property managers to scour mounds of data to determine if a new tenant is a good bet.
In the past, the three credit bureaus often provided disjointed and vague information, providing only the most basic insight of a renter. But with rental history now being included into the data mix thanks to Costa Mesa, Calif.-based Experian RentBureau, and other efforts to sharpen metrics to create more accurate reports, landlords can capture critical info more quickly and easily.
Most major screening providers allow landlords to determine just how far back into a potential tenant’s background they’d like to go when digging up their credit history. They can configure the metrics for their software to only look back two years on a potential tenant, for instance. The information will indicate just how far that individual has come since enduring the economic climate, without taking bankruptcies or evictions from five years ago into consideration.
“In the Michigan market for example, where the economy really had a tough time through 2009, 2011 and you’re not operating top properties, you can be pretty certain that most renters will have significant credit issues for three to five years at this point,” says Patrick Hennessey, director of resident screening at Santa Barbara, Calif.-based Yardi.
But the changes need to be done tactfully. By working with a screening provider, managers can figure out what substantial changes they need to make to their software in order to get their level of approvals versus denials at the right target.
“You want to treat the changes you’re going to make with a scalpel as opposed to a sledgehammer,” Hennessey says.
The metrics that go into the screening process itself merely looks at historical levels, leaving predictions up to the landlord. Experian RentBureau, for example, analyzes about seven years of data. This history tells property managers how individual renters have paid rent on their prior leases, determining if they’ve made on-time payments, or if they have outstanding balances.
“We figured how can the screening process be improved to better predict who is going to pay their rent responsibly and who isn’t,” says Brannan Johnston, vice president and managing director at Experian RentBureau. The biggest question was whether a tenant's history was predictive enough to determine their actions at a new residence. “The answer was overwhelmingly yes,” Johnston says.
Experian RentBureau's research found that potential renters who skipped out on a lease were four times as likely to default on a new lease at a rate of 23.2 percent. Those that skipped out on two or more leases were about six times more likely to default at a rate of more than 35 percent.
And that amount of defaults naturally fluctuates year to year.
Experian RentBureau alone has grown since its acquisition in 2010, from 7 million residents to 10 million. The amount of properties contributing data has also grown, not to mention new efforts to broaden the database, allowing tenants renting from private landlords using third-party rental processing systems to contribute positive rental data to the bureau, as well. That positive data is how the company plans on more accurately and predictively analyzing each renter.
With thousands of firms contributing data to the three credit bureaus in addition to individual rental history, it’s easy for information to get misconstrued. But the bureaus have increased their due diligence to provide a more consistent portrayal of potential renters.
“As recent as 10 years ago, there were definitely much higher differences between the three [credit bureaus], but in today’s environment, most of the bureaus are pretty identical in data,” Hennessey says.
At Experian RentBureau, the data management team looks for complete information for coverage, with a dedicated team and 400 data quality rules to determine whether data submissions are accurate in terms of its logic and historical consistency.
“For example, a data firm for the auto industry should not be reporting a mortgage account,” Johnston says.
The system will catch mistakes and flag them, with reports being nearly 98 percent accurate. But even if there’s a discrepancy throughout the three bureaus, only 2.2 percent of reports actually containing errors will shift the consumer to a higher risk level, according to the Federal Trade Commission.
Mistakes on rental data could take years to correct, and it’s just another level of work that goes hand-in-hand with rental data collection. And the amount of work that goes into the collection is likely why other bureaus have yet to offer the service.
“I think it would be great if they did,” Johnston says. “I think it’d be great for the industry and great for renters.
-Linsey Isaacs is an assistant editor with Multifamily Executive magazine. Follow her on twitter @LinseyI to continue this conversation.