Florida Landlord Network

Some time ago Fair Isaac Corporation ("FICO"), studied the relationship between credit scores and mortgage delinquencies. They discovered a close relationship between a credit worthiness and credit score. Landlords may find these scores useful when considering the credit application of a potential new tenant and for establishing the appropriate Security Deposit.

The FICO study showed about half of with FICO scores below 550 became ninety days delinquent 90 days or longer at least once during their mortgage. At thee other end of the scale two out of every 10,000 with FICO scores above eight hundred became delinquent.

The chart below shows the likelihood of a ninety-day delinquency for specific FICO scores. The results may surprise you.

Credit scores are reported by each of the three major credit bureaus: Experian (formerly TRW), Equifax, and TransUnion. The scores from each bureau are usually different do because each bureau places a slightly different emphasis on different items. Scores range from 360 to 850 and are called different names by each of the bureaus -- Experian calls it a FICO score, Equifax calls it a Beacon score, TransUnion calls it an Empirica score.

Here are some of the things that may negatively impact FICO credit scores:

• Delinquencies: The number, the severity, the recent pattern of late payments
• Recent Accounts: Too many accounts opened within the last twelve months
• Credit History: Limited credit history or no credit history
• Credit Limits: Balances on revolving credit are between 51% and 100% of the maximum credit limits
• Public Records: Public records, such as tax liens, judgments, or bankruptcies
• Inquiries: Too many recent credit inquiries
• Credit Cards: Too many new revolving accounts, some of which are damaging to your score
• Closed Accounts: In some cases, this may actually lower your score.

While basic guidelines will vary from lender to lender, when a mortgage is under consideration a score above 680 generally will require only a very basic review of the entire loan package. Scores between 640 and 680 require more thorough underwriting. Once a score gets below 640, an underwriter will look at a loan application with a more cautious approach. Many lenders will not even consider a loan with a FICO score below 600.

Landlords should establish similar guidelines for their applicants using several factors for consideration.

FICO Scores and Interest Rates
Credit scores effect loan approval but they also affect how much you pay for your loan. Lenders usually set a "base price" and reduce the points on a loan if the credit score exceeds a certain score or increase the interest rate if the score is lower.

Landlords can use a similar method to determine the appropriate Security Deposit. For example, you might set the basic Security Deposit amount at 100% of one month's rent. If the FICO score is greater that, say 640 discount it to 75% of one month's rent. If the score is less than 600 and greater than 550 charge a deposit of 150% of one month's rent. Finally, if the score is between 550 and 525 charge a deposit of 200%. A score below 525 gets declined.