Landlords entrust their rental agents to bring and secure them the best quality tenants. They trust that the tenant recruitment fee they pay guarantees the tenant who is ultimately signed has no negative judgements against their name, can afford to pay the rent on time and in full each month, and that they do not have a history of bad payment behaviour.
But even if a rental agent does all that is expected of them, such as doing a credit bureau check, contacting references and using their own intuition, bad tenants continue to be signed to good landlords. Why does this continue to happen?
A big part of the reason has to do with the start of the process and how data is compiled and translated.
The credit bureau check fails to take current and past rental payments into account as rental is not deemed a credit payment. Despite a third of all tenants’ monthly disposable incomes allocated to rental payments, isn’t it high time this large expense was included in a credit report? Especially if the tenant had a history of being a bad rental payer?
PayProp, a rental collections agency, recently introduced a new product to its agents that will see past and present rental payment behaviour included in tenants’ credit repayment performance. This new product, called the PayProp Rental Risk Rating, is a much better predictor of tenant riskiness.
For example, according to PayProp analysis, the difference between a potential tenant’s riskiness when a credit report is solely referred to, versus where rent is included in their risk score, is 29% versus 48% (medium and high risk combined). This shows the massive difference rental payments make to repayment behaviour.
“Because the PayProp Rental Risk Rating takes rental payments into account it is the obvious choice when assessing a new (or re-assessing an existing) tenant,” said Johette Smuts, head of data at PayProp. “The algorithm used to calculate the PayProp Rental Risk Rating is proved to be a better predictor of future bad tenant behaviour than a normal credit score.
“The data used is pulled on the same day every month and can’t be edited manually – two very important factors in protecting data integrity.”
The rental risk rating has been designed in collaboration with credit bureau Compuscan, and combines rental payment data with credit payment data. The outcome is an enhanced tenant payment profiling metric that is much better at identifying potential bad tenants than a normal credit score.