Working Landlord, Happy Tenants


Renting to people with poor credit

An untarnished credit record is like a magic gold key—it opens up the doors to many opportunities, including the doors to rental properties.

Unfortunately, like pure gold, the key is soft and easily damaged. I believe it is too easy to obtain credit these days, and unsuspecting people can get sucked in to financial over-commitments. Our culture is based on consumption in excess of need, and modern advertising is cleverly designed to bypass reasoned choices. It’s a curious anomaly, but the throw-away/take-away lifestyle of the poor is self-perpetuating of that state. Anyone can observe many wasteful habits and actions practised by those who can least afford them. Alcohol, smoking, and gambling all compete for the weekly dollar, and frequently win out over the rent.

If you’re letting out a rental property, you will undoubtedly encounter people with poor credit history. Blemish-free records are rare among the renting community, so be on your guard, as history repeats. That’s why it is vital to do credit checks on prospective tenants before committing yourself verbally or in writing. If they’ve reneged on one occasion, there’s a strong possibility that they’ll do so again. Commercial society is rather unforgiving, as a debt once recorded leaves its trace for 7 years even if fully repaid. This is understandable—the record tells you that at some time in the recent past, the person concerned incurred a debt that required collection. If you’ve had a bad credit experience with a client your memory would likewise make you cautious about getting your fingers burnt a second time with the same person. We didn’t do credit checks in our early years of managing tenancies, and we paid the price for our ignorance—we were caught with bad tenants on more than one occasion and were unable to recover the arrears.

Housing is a basic human need, and people with bad credit need a roof just as much as the rest of us. But I’m happier if I don’t own that roof, because its weekly rent is the life blood of my property investment business, and I’m not in the business of providing a social service. That’s the job of the government, and the current government makes no secret that state housing is a social service to be underwritten by the taxpayer. Even if state rents are uneconomically set to be income-related (as they are) people still abuse the system, and so Housing New Zealand enjoys a privilege currently denied the private landlord, in that rents can be directly credited from benefits without passing through the tenant’s hands—but maybe Housing New Zealand doesn’t have exclusive access to this arrangement—more on this later.

As a landlord, I’m happiest when I know my tenants can handle their finances responsibly. So when someone wants to rent from me and is definite enough to fill out an application form, in the course of the chit-chat I casually mention that I will need to do a credit check and point out the clause which requests their signed permission, and their current and previous addresses. While maintaining a disinterested manner, you immediately get some clues of credit status through observing the reaction. In most cases, people are unaware of their credit status and this normally means good news. A defensive response indicates need for caution and a definite follow through with the credit check.

When reading a credit report, the comment “No adverse information found on subject” is what you’re looking for, along with a history of a reasonable number of credit checks having been done. If the person has no record of others doing credit checks, then you’ve probably got the name spelling or date of birth wrong, and you’ve inadvertently created a new record—this is why it is essential to verify a person’s identity, as people with poor credit will use a variety of aliases to try to bypass their poor record and gain a “clean slate”. This is somewhat easy to do, particularly if a person’s real names are non-English and have difficult spellings. Eventually the credit report catches up with the multiple identities and lists the “cross references”, but the cross-linking of records is a manual process that depends on the credit agency being given such details manually (i.e. by fax or telephone, not by website forms) by people like you and me who are seeking the true credit status.

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Credit checks may be done on-line provided you have established an account with the agency concerned. The process is simple and available 24/7, but your input data must be 100% accurate.

In order to request a credit report you need, as a minimum, for each applicant:
• full names, ordered and spelt as on birth certificate or passport
• date of birth
• present street address and suburb
• approval to check.

Ignoring any transient stays, obtaining one or more previous addresses is also useful. This lets you confirm if the address trail in the credit report matches what the applicant claims.

Ask to see proof of identity such as a driver’s licence or passport. The photo ID confirms the person and lets you verify spellings and birth dates.