Credit Checking vs Application Processing – Do you know the difference?

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The Tenant with the excellent credit score or the Tenant who paid twelve months in advance turns out to be a Tenant from hell.

If you ever had such an experience you will know that application processing is one of the most crucial steps in the Rental Value chain.

Question: Why do so many agencies think of this activity as one where you request a Credit Report from a Credit Bureau and if the Score is favorable with no Judgments or Defaults, the job is done.

So, what is the difference between Credit Checking and Application Processing?

Credit Checking is exactly what it says, drawing a Report from a Credit Bureau and checking the Credit Information to see whether the prospective Tenants have some negative Credit information recorded on the Report.

Application Processing on the other hand is about correlating information received from multiple sources to confirm that there are no discrepancies and that the picture presented throughout the application is consistent. Any deviations need to be flagged and investigated further because one or more of the sources are then incorrect.

For example, consider the following Information and the associated sources to use for correlating the information:

  • Personal Info and Contact Detail: (Sources: Application Form, Credit Report)
  • Previous Landlord / Agency: (Sources: Application Form, Reference Check, Credit Report)
  • Reason for Leaving (Sources: Application Form, Reference Checks)
  • Gross Income: (Sources: Application Form, Salary Slip, Statement of Income and Expenses)
  • Nett Income: (Sources: Salary Slip, Statement of Income and Expenses, Bank Statements)
  • Previous Defaults / Judgements: (Sources: Application Form, Credit Report, Bank Statements)
  • Employment Info: (Sources: Application Form, Salary Slip, Credit Report)

I found the following steps to be useful for Application Processing:

  1. Validate Application for Completeness – Check that the application form and all the requested supporting documents are available and complete.
  2. Reference Checks – Call the previous agency / landlord and confirm at least the duration of the previous tenancy, the current rent, the reason for leaving and any general feedback on the behaviour of the tenant (Was rent paid on time? Did the tenant look after the property?)
  3. Affordability Checks (Income Analyses, Cash flow analyses) – Confirm that the Tenant can afford the rent and most importantly confirm that the Tenant have enough cash flow over month end by look looking at the Bank Statements and on what days his rent was paid previously.
  4. Credit Checks – This step is only required when all the other steps have been successful. This step actually only need to confirm what you should already know. If you are dealing with a Tenant with integrity, there should also have been full disclosure of any negative credit information and there should be no surprises.
  5. General Risk assessment – This step is all about the risk profile of the Tenant based on other factors such as (employment stability, family situation and size, property fit, pets, etc.)
  6. Landlord Discussion and Approval – The role of the agency is to provide the Landlord with quality information to make an informed decision. I am a firm believer of discussing the information with the Landlord, using the opportunity to show case your diligence and backup your recommendation with detail analyses.

Lastly, remember to consider the following when implementing Application Processing in your business.

  • It is not a good idea to let your Rental Agent do the Application Processing. Rental Agents are marketing people and relationship building people.
  • You need some-one with excellent attention to detail, good analytical skills and with mind space over month end to do this task diligently.
  • If you want to standardise, consider the implementation of a checklist for the process steps and append that to every application before filing it.
  • If you are using software tools, consider tools that allow you to automate the audit trail of the process steps and to create an application processing report that can be sent to the Landlord.

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