The traditional resident screening method your multifamily property uses can make leasing decisions simple. Applicants with good credit and standard rent-to-income ratios will usually be approved; the rest get denied. 

Unfortunately, there are persistent myths about traditional screening that could hurt your business. How? They can lead you to eliminate applicants who could qualify for a lease with a more thorough evaluation.  

If you turn away too many viable applicants, your occupancy rates and net operating income (NOI) could suffer. 

Here are 4 common resident screening myths and the truth about them:  

MYTH 1: Credit scores are the best way to evaluate applicants 
MYTH 2: It’s appropriate to use traditional income verification for gig workers 
MYTH 3: Vacant units are preferable to residents who don’t pass your traditional screening criteria 
MYTH 4: Traditional resident screenings aren’t perfect, but they’re your best option 

MYTH 1: Credit scores are the best way to evaluate applicants  

Credit scores are widely used by multifamily properties in resident screening. Scores give you a number representing an applicant’s credit history, or how they’ve paid bills in the past. They appear useful and objective, but they have drawbacks.

TRUTH: Credit scores only reflect the past, which is just one piece of the puzzle. 

Credit scores primarily evaluate an applicant’s history of borrowing and paying back money (credit), and length of their credit history. They can’t give a complete picture of an applicant’s cash flow or financial stability.   

These shortcomings also limit the effectiveness of credit scores used for resident screening: 

• Credit Scores Can’t Predict If an Applicant Can Pay Rent: They don’t consider income, savings, or job history. And since only a small percentage of apartments report rent payments to credit bureaus, rent payment history is often ignored as well. Yet those factors are crucial indicators of an applicant’s future behavior and ability to pay rent. 

• Credit Scores are Prone to Errors: The Federal Trade Commission (FTC) reports that 1 in 5 people have an error on their credit report. Other studies suggest that up to 79% of reports may have inaccurate information. 

• Credit Scores are Negatively Impacted by Paying off Debt: Paying off a car loan, mortgage or other installment loans, as well as keeping credit card balances low, should be a good thing. After all, it lowers their outstanding debt. But it has a negative impact on their score. 

• Credit Scores May Vary Depending on the Credit Bureau: Each bureau—Equifax, Experian, and TransUnion—uses its own data, scoring model, and reporting timeline, which can result in different credit scores for the same person. 

MYTH 2: It’s appropriate to use traditional income verification for gig workers

Your multifamily property’s traditional income verification leans heavily on a standard rent-to-income ratio for applicants. Unfortunately, that creates issues for gig workers, whose income can vary from month to month. And those income fluctuations can also lead to incorrect assumptions about these applicants.  

TRUTH: If you don’t adapt income verification methods to account for gig workers, you exclude a substantial number of qualified residents. 

Multifamily properties may assume gig workers don’t earn enough to pay their rent. Or that their income is sporadic, unreliable, and unverifiable.  

For many applicants, gig work has become a major source of income, with an increasing percentage earning most of their living through independent work.  

And gig workers now represent a significant share of today’s renters, with more than 50% of the U.S. workforce forecasted to be part of the gig economy by 2027. 

So, if your property uses traditional income verification methods that don’t allow alternate documentation like 1099s, tax returns, and client invoices, you’ll miss out on a large pool of qualified applicants. 

MYTH 3: Vacant units are preferable to residents who don’t pass your traditional screening criteria 

Holding out for your ideal applicants—those with good credit and easily verifiable income—sounds like a good strategy, especially when weighed against the potential cost of eviction and readying the unit for a new resident. But the costs of a vacant unit can add up quickly! 

TRUTH: Finding new applicants to replace denied ones is expensive.  

Finding your ideal applicants costs money to reach them on Apartments.com or other marketing channels. 

And if your resident screening process denies the new applicants, you can’t recover that expense, or the time and energy your staff spent showing properties and communicating with applicants. 

So, you burn money to try and attract more of your ideal applicants. Meanwhile, your vacancy costs are rising! 
 
If units are vacant long enough, you might have to offer rent concessions to attract additional applicants. And if your property is part of a multifamily portfolio, vacancy costs can become a financial nightmare.  
 
MYTH 4: Traditional resident screenings aren’t perfect, but they’re your best option 

Myths 1 and 2 showed that traditional screening processes don’t always effectively evaluate an applicant’s ability to pay rent. And Myth 3 showed how keeping vacant units is an expensive, unsustainable strategy. But you’re locked into your screening process, even if occupancy rates are falling, vacancy costs are rising, and NOI is stagnant. 

TRUTH: There’s a solution that will work alongside your screening process to help qualified applicants get approved. 

Liberty Rent Second Chance Lease Approval takes a closer look at your denied or conditionally approved applicants.  

We use enhanced screening and proven financial models to identify qualified residents passed over by traditional screening. And if we approve an applicant, we stand behind them—your property is covered for up to six months of rent loss. 
 
Here are additional ways Second Chance Lease Approval can benefit your property: 
 
• Increase occupancy rates 

• Reduce vacancy costs 

• Improve net operating income 

• Minimize wasted marketing dollars 

Ready to learn more about this exciting and effective occupancy solution? Book a meeting now.