One of the big challenges low-income renters face when searching for new housing is the landlord screening process. A recent study breaks down which areas are important to landlords screening new tenants, and highlights the problems that disqualify good tenants.
The Housing Justice Fund and Family Housing Fund in Minnesota published a study in March of tenant screening practices in the Minneapolis-St. Paul area. Although they describe landlord practices found in the Twin Cities, most of these trends are common in other cities.
Landlords look at a number of things when making a decision about whether or not applicants will be good tenants. Being a good tenant means the rent is paid on time, there will be no disturbances, and the apartment will not be damaged. Landlords usually look at income level, rental history, credit history, and criminal history.
Even when they do not intend to discriminate, landlord screening can affect minority and female applicants more than others. Black, Hispanic, and female-headed households make up a large portion of low-income renters. When a screening cuts out many qualified low-income applicants, a lot of them are minorities and women.
These are some of the problems with the tenant screening process described in the Twin Cities report:
Landlords will look to verify income. They want to make sure that tenants make enough to pay the rent each month. A common formula is for applicants to make three times as much as the rent each month. When landlords stick to this rigid formula, it cuts off many qualified renters from affordable apartments.
This way of figuring an applicant’s ability to pay misses many resources that low-income renters use so that they can make the rent. It does not account for non-cash assistance, like the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps). It also does not factor in other supports that many renters rely on, like free health insurance or help with public transportation.
When looking at rental history, landlords typically check the number of years since any prior evictions and the number of years of positive rental history. Positive rental history means no evictions, rent paid on time, and good landlord references.
Landlords often hire tenant screening companies for background reports. These include history of any evictions and relevant debts. Unpaid back rent or utility bills would be relevant debts.
Landlords and screening companies also often seek references from prior landlords. This approach may get fewer responses. Prior landlords will typically provide the dates an applicant rented from them, but not much other information. If landlords give misleading information about prior tenants they can open themselves up to liability.
Among the smaller landlords in the Twin Cities report, many rejected any applicant with an eviction within the last 10 years. The majority of landlords in the study, though, looked back only two or three years for positive rental history.
Landlords will also check credit history to determine if applicants are likely to pay rent on time. Many low-income renters have poor credit, or no credit history at all. Poor credit is the most common reason given for denial. How credit histories are compiled puts low-income and minority renters at a disadvantage.
FICO and other credit scoring systems do not necessarily guarantee an applicant will be a good tenant. They have a history of lower scores for households of color. They also do not reflect good payment history besides credit cards or loans. Credit scores would go up for most low-income renters if on-time rent and utility payments were included.
Credit scoring systems are very sensitive even to minor debts. Unpaid bills of less than $500 can drop a credit score. These include things like cell phone bills, unreturned cable boxes, and utility bills. They also include unpaid medical bills, bail bonds, and student loans.
Landlords in the Twin Cities study were divided on the importance of credit scores. About one-third said credit history was the most important item, while about half said they do not consider it at all.
Landlords tend to be most concerned when the debt is related to housing. Applicants with back rent and unpaid utilities are more likely to be rejected. Renters with other kinds of debt may be able to show landlords they can still pay their rent on time.
Renters who have served time in jail or prison have a very hard time finding affordable housing. Using criminal history to deny rental applications also has a history of discrimination. With Black and Hispanic people over-represented in the prison population, more minority applicants are likely to be rejected by landlords based on past criminal history.
Some landlords will reject any applicant with a criminal record. Many landlords, though, will look at what crimes were committed and how recently did they happen? Recent violent crimes, and property crimes like burglary, are likely to lead to rejection. Rental applicants with misdemeanors and crimes committed years before are less likely to be rejected.
Third-Party Background Checks
Many landlords turn to third-party companies to screen rental applicants. These screening companies prepare background reports that include information on credit history, criminal history, and rental history.
These reports can harm low-income renters applying for housing. They can contain information that is not relevant to the application. Expunged court records are an example of this. Some companies will include information from prior landlords that contradicts public or tenant records. Rather than leave the information out, they include it so the landlord can see everything that was gathered.
These companies automate the selection process, taking the “guesswork” out of finding good tenants. These programs, though, use algorithms that may be prone to bias. There is also no way for an applicant to explain individual circumstances or challenge errors. This system also takes personal judgment and discretion away from the landlord.
Recommendations to Improve the Screening Process
The authors of the Twin Cities report have many recommendations for making the screening process more fair for low-income renters. State and local governments can take steps to make sure that all renters have equal access to affordable rentals.
- In general, there should be more transparency in the process. Renters should know why their applications were denied. They should also know how to challenge incorrect information.
- Landlords should focus only on relevant items in criminal, credit, and rental histories. When landlords take the time to look at the individual circumstances of applicants, they can find excellent tenants.
- Income level screening criteria also need to be examined. Landlords benefit from flexibility when they look at non-cash resources tenants have, or take things like seasonal employment into account.
- Landlords also need to investigate prior rental history more closely. Common sense says that the further back an eviction happened, the less likely it is to happen again. The most common “look back” period among landlords is 2-3 years. Landlords going back 5-6 years, or with permanent bans, should shorten their review to the more common period.
Automated screening programs pose special challenges. They certainly save landlords time in reviewing and rating rental applications. However, the algorithms they use often reinforce biases in the local rental market and can have discriminatory effects. There is also little opportunity for low-income applicants to provide additional helpful information.