Assessing the true risk of a lease applicant could become slightly more challenging for apartment operators this summer.

On July 1, the three credit bureaus — Experian®, TransUnion and Equifax — stopped including a number of civil judgments and tax liens in their credit reports. While the overall impact on credit scores may prove to be modest, the changes to the reports are yet another reminder of the importance of a wide-ranging and comprehensive screening process.

“When I’m renting an apartment, I want to take the best applicant — someone who is going to honor the lease obligation first,” said Michael Johnson, executive vice president at Memphis, Tenn.–based Alco Management. “That’s why operators need to incorporate a range of screening methods.”

New Calculations
The recent changes stem from concerns about insufficient identification information in credit reports, according to the Consumer Data Industry Association (CDIA), which represents the three credit bureaus.

Under the new standards, tax liens and civil judgments, such as evictions, are excluded from credit reports if their resultant public records don’t include the consumer’s name, address, and either a Social Security number or a date of birth. Additionally, entries on the liens and judgments were removed from credit reports if the public court records didn't check for updates at least every 90 days.

According to the CDIA, the changes will not impact creditors’ ability to rely on credit reports. “Analyses conducted by the credit reporting agencies and credit score developers FICO and VantageScore show only modest credit scoring impacts and impact to predictive performance as a result of the changes to public record standards,” the association said in a statement.

The Past Predicts the Future
Still, the changes could impact apartment operators who don’t incorporate an array of data points into their screening to broadly access the likelihood that an applicant will honor his or her lease obligations. 

“If you are looking at just credit scores alone, you are going to have less information,” Johnson said.

The effect of the changes at Alco should be minimal, according to Johnson. That’s in large part because the company uses multiple screening methods to ensure it’s selecting the most qualified applicants. Alco screens for civil judgments and tax liens independently of credit reports and performs a criminal background check. Reaching out to references listed on rental applications and verifying income via recent pay stubs are other common non-credit-based screening tactics.

“I think it’s imperative to see how someone has honored their previous rental payment obligations,” Johnson said. “It truly gets to the heart of the matter: How likely is this person to honor their lease?”

How an individual has paid rent in the past is a strong indicator of how that person will pay rent in the future, according to Erik Brue, vice president for Experian RentBureau. “Our research shows that the lease default rate for prospects with a positive rental payment history, meaning one with no skips or unpaid balances, is just under 6 percent,” he said. “On the other hand, the default rate for prospects with one prior unpaid balance jumps to more than 23 percent.”