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 Property Management
Credit in Crisis: How COVID-19 Has Changed the NCredit-Checking and Screening Process
By David Crown, Los Angeles Property Management Group
ow more than ever, researching the systems. Basically, help is on the way. Just like the FICO score, credit of rental applicants is essential a credit score created by the Fair Isaac Corporation, updated to choosing the most qualified tenant their credit scoring system in January 2020 to include personal for a vacant apartment unit. Credit- loans as a distinct category, new credit assessment systems checking has never been able to tell will likely be able to account for the intricacies of how the you every-thing you need to know pandemic affected a person’s financial standing. But just as about an applicant, but historically, it you would not expect the financial sector to sit idly by while a has provided important information worldwide disaster weakened one of its most essential tools,
in the selection process. you should not sit idly by and wait for new metrics to return
The pandemic, however, has complicated things where credit is concerned. Millions of people were unemployed for a year or longer due to shutdowns for public safety, and they have relied on assis-tance programs to continue renting their residences. Many still do. We think of our current time as “post-COVID,” but in truth the pandemic is not over yet. As property managers, the question we should ask ourselves is: what do these changes in the effectiveness of credit checks mean for our industry? Let’s explore some information that’s pertinent to answering that question.
Credit Scores Might Not be as Effective...For Now. Joelle Scally, a Financial and Economic Ana-lyst for the Federal Reserve Bank of New York, has said publicly, “[Credit scores] are a really im- portant tool for lenders to identify creditworthy borrowers, but with the protection of the forbearance programs some of that may be muddled.” Given that typical indicators of poor credit (such as unpaid rent and other outstanding payments) do not have the same implications right now due to the cir- cumstances of a global pandemic, it makes sense that credit scores are not as cut-and-dry as they usually are. A permanent weakening of credit scores as a tool would cause a significant shift in the way property managers and property owners evaluate applicants, but fortunately that’s not in the forecast. The efficacy of traditional credit scores will return, and in the meantime, banks are in the process of developing more holistic tools. That leads me to the next key factor.
New Models Are Incoming. Financial institutions are hard at work developing data-driven analysis models that will provide a more accurate credit risk assessment than current
the tenant-analysis process to normal.
Property Managers Will Have to Strengthen Other Evaluation Efforts. This might go without say-ing, but there is no way around it: in the current absence of a perfect credit-checking system that contextualizes pandemic debts, property managers will have to place greater emphasis on their other means of appraising a prospective tenant’s financial responsibility. If you were to only call the tenant’s previous landlord, you should call their previous two landlords now. If you had only run a statewide eviction search on them, run a nationwide one now. Both of these examples should al-ready be standard practices for all property managers, but if they are not for you, take this opportuni-ty to step up; it might be your only way to even things out if you can’t perfectly check credit. In addi-tion, you can ask for verification of previous money transfers between the tenant and their landlord in order to support the tenant’s creditability.
If anything, the inability to rely on credit checks should make you even better at selecting tenants in the future, because you should retain the other skills and practices you develop as a result. As I have said since the early months of this strange and confusing time, and as I say about all adversity, the best thing we can do with it (after we finally come through it) is learn from it.
 David Crown is the Chief Executive Officer of Los Angeles Property Management Group and has over twenty- five years of experience managing all types of income properties. He can be reached directly at (323) 433-5254.
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