In addition to the issue of Association and landlord denying approvals based on criminal history, many Associations and landlords are restricting, limiting or outright denying applicants based solely on credit history, employment issues and past bad conduct unrelated to a criminal matter. These restrictions, coupled with the already restrictive criminal matters, has made purchasing and leasing property even more difficult for those people with a previous felony conviction, bad credit, short employment history, or other background matter that, in the past, would not have prohibited the purchasing or leasing of property as long as the prospective buyer or tenant had sufficient funds to consummate the transaction.
A credit check of a prospective buyer or tenant is now a very common requirement of Associations and landlords. Obtaining the credit score of any prospective purchaser or tenant is an inexpensive way to weed out candidates who may not be financially responsible. The real question is whether or not a credit score is determinative of a person’s ability to pay assessments as an owner or rent as a tenant.
Much of what determines a person’s credit score is proprietary based on the formula created by the Fair Isaac Corporation. The company uses credit data included in a consumer’s credit report consisting of the following five elements: payment history; credit utilization; length of credit history; new credit and credit mix. These five items are then put through a proprietary system by the Fair Isaac Corporation to create a credit score which ranges from 300 to 850 (for the most common FICO8 program).
The FICO score does not include a person’s employment, income or bank account information. Therefore, having a low FICO score does not necessarily equate to having low income or low savings. Many people who go through a divorce or a difficult medical issue may have had their credit score fall substantially, either due to a short-term inability to pay past due obligations, the running up of credit to cover substantial medical expenses, or even have issues relating to a spouse or child or issues due to identity theft.
Fair Isaac provides scoring but does not specifically state the value of each number. However, a typical breakdown of the various scores is as follows:
580 and below very poor credit score
580-660 fair credit score
661-720 good credit score
721-799 very good credit score
800+ excellent credit score
Utilizing the foregoing system, many landlords and Associations are conditioning approval on a minimum credit score for each occupant over 18. This score generally ranges from 620 to 700 as a minimum for approva,l regardless of an applicant’s other information. In addition, many Associations and landlords impose conditional approval on scores below 700, adding additional requirements that other applicants may not have to address, such as additional deposits or a third-party guarantor.
Currently, the average credit score is 695, which is below the threshold that some Associations or landlords have established for approval. In addition, a majority of Americans have a credit score between 660 and 720, and at least 15% have no credit score. This means many candidates for purchasing or leasing a property may not qualify due to credit score restrictions. At least one third of all consumers have a credit score below 620. These low scores can make purchasing or leasing a property virtually impossible, and a whole industry has sprung up to help people improve their credit scores due to the debilitating effects that a low score can have.
Some consumer advocates have stated that imposing restrictions on leasing and purchasing based on credit score is a form of discrimination, but so far no guidelines have been promulgated by the HUD regarding same as they have done for the issues relating to approvals and past felonies. It is possible that such guidelines may arise, or a court may determine that the usage of a credit score to deny an applicant is, on its face, discriminatory.
In processing any application for lease or purchase approval, it is recommended that the credit score be a factor but not the only determining factor in whether or not to grant approval. Age, employment, income and savings should be used side-by-side with the credit score in order to determine an applicant’s suitability and financial ability. Furthermore, if an applicant is denied as a result of the credit score, it is imperative that the Association or landlord provide adequate written notice of the denial based on credit score and the name and address of the credit reporting agency that provided the credit information.