Low Credit Score or No Credit Score Isn’t Always High-Risk For Rent Payment

Low Credit Score or No Credit Score Isn’t Always High-Risk For Rent Payment

Guaranteed rent companies like OneApp and Nomad accept the financial responsibility of applicants by providing upfront costs such as the rent deposit and first month’s rent and guarantees renters will pay each month.

By Paul Bergeron

An insufficient credit score is the No. 1 reason why apartment operators deny prospective residents’ applications. It doesn’t have to be that way, says Tyrone Poole, founder of a new industry application and payment tool, OneApp.

OneApp serves as a co-signer for its qualified applicants, which apartment operators say is often the single thing that would enable them to accept applicants whose credit scores don’t meet the minimum standard set by the communities.

OneApp, representing more than 1,000 apartment communities and supported by more than 100 property management companies nationwide, accepts the financial responsibility of these applicants by providing the proper upfront costs such as the rent deposit and first month’s rent. It guarantees these renters will pay their rent each month.

The OneApp Guarantee costs the property management company and screening companies nothing.

Driving Revenue, Occupancy with Proven Results

Karen McLane, director of RangeWater, has been using OneApp in her portfolio for over a year.

“It has been great for when you have that borderline applicant or the denial that has great income but is more of a credit risk,” McLane says. “My owners love the program. Additionally, it is very easy to use – you just refer your applicant to OneApp and they take it from there. And, there is no cost to the property – the fees are paid by the applicant and they’re not excessive so as to lose the applicant.”

Joyce Prince, regional manager of BM Residential, says that in less than a year, OneApp Guarantee added $4 million of annual revenue to BM Residential’s bottom line.

“It helped us to fill over 350 vacancies with guaranteed residents, increasing our overall occupancy by three percent to five percent with only a handful of defaults. The few defaults we have had were paid out very promptly within a few days. I would recommend any multifamily company to use this unique, risk-free product.”

Credit a ‘Terrible’ Measurement of Risk

Poole says that 96 percent of OneApp participants are employed, only four percent of its users have been evicted, and a total of 13 percent of leases end in debt—lower than the national average.

“Credit is the No. 1 reason for their denial, but it’s a terrible measurement of risk,” Poole says. “Not having credit doesn’t automatically mean you are at risk.”

Poole says that although credit maybe the No. 1 reason for denial, it’s not the top reason for America’s housing crisis.

“The real problem is risk,” he said. “To be more specific, it’s the strategy housing providers use to mitigate risk. In an effort to maximize success, housing providers first identify, then deny access to housing to America’s most vulnerable families.

“This is not because housing providers hate poor people, or racism, or any of the other narratives being spoken. It’s basic economics. A housing provider’s success is directly proportional to the level of vulnerability of their residents. The more rent burden they face from residents who can’t miss a single day of work or are one parking ticket away from being unable to pay rent; or from residents who left property-adamage balances with previous landlords and have not proven they quite know how to care for a rental property, the less likely they are to reach their projected goals.

“If they take on too much risk, they can lose their assets altogether. No one is disputing a housing provider’s right to mitigate risk – it’s a fundamental and key necessity of being a housing provider – but America’s current strategy isn’t working. It’s full of unintended consequences such as gentrification, poverty, crime increase, trauma, etc. We can do better.”

Low Credit Score or No Credit Score Isn’t Always High-Risk For Rent Payment
“We want to pay our landlord clients market rent, guaranteed, and charge them a fee equivalent to how risky it is for us to do that every month. So they’re never worried about vacancy costs. They’re never worried about a delinquent tenant,” said P.J. O’Neill founder of Nomad, which started in Denver. He said their research shows the Phoenix metro market is a good market for their expansion. O’Neil is a founder and a veteran operator of Opendoor.com, which buys homes from individual sellers.

Why the 600 Minimum Credit Score?

Poole has asked many operators why 600 is their minimum acceptable credit score, and he said they have no real answer for it. He wonders if it’s one of those “this is always how we’ve done it” situations.

“When derogatory information is found on a renter’s background check, it can be really difficult to tell if those circumstances are still present in the applicant’s life. The easy thing to do is to deny, but OneApp offers landlords an alternative.”

He said operators inherently believe that their policies ‘keep out the bad ones’ and that their criteria are sound.

“Then we show them our data and it reflects the opposite,” he said. “Once operators understand that these aren’t bad people, it all goes smoothly.”

OneApp covers the risk these applicants might present for the entirety of their leases. If the applicant is successful in fulfilling their lease terms, they are able to renew the lease with the owner directly.

“Owners sometimes set their financial-acceptance requirements based on one case that didn’t go well,” Poole says. “We know that, in general, working off of assumptions doesn’t help anyone.”

How It Works

OneApp helps families across the United States gain access to housing by acting as a co-signer. Income, credit, eviction history, debt to income or lack of rental history are the most common approval barriers for renters. At most property management companies, these barriers can be overcome by a co-signer.

OneApp Guarantee receives approximately 1,000 applications each month for its service. Unfortunately, only about 25 percent of those applicants are able to participate, usually due to their inability to afford the upfront costs. However, Knock is having a national industry campaign to raise $200,000 to help cover these costs, giving more rent-paying residents the chance to move into an apartment.

The program is working so well that in 2021, OneApp successfully overturned about 2,500 denials. This year, it hopes to overturn 10,000.

Knock Calling on the Industry for Support

Knock + OneApp are working together to not only break down barriers to access housing but keep people in housing.

Financial contributions from Knock and the multifamily community allow OneApp Guarantee to offer their very first payment plan option allowing renters to make smaller payments over a series of months until they cover the cost of the OneApp Guarantee fee.

If the renter defaults on their payments, instead of putting their lease at risk, our community-raised funds will cover the difference. If the renters are able to make their monthly payments, OneApp can add more renters to this program.

Knock has raised $30,000 internally between Knock donations and employee contributions and plans to continue to contribute.

“We know as a community we can aim much higher so we stretched our goal to helping 10,000 families gain access to housing this year,” Knock Co-Founder and CEO, Demetri Themelis, says.

“To achieve this, we need $200,000 total in the fund to support payment plans for that many renters. We can’t raise that much alone, so we are asking for your help in fundraising and spreading awareness about this important cause. Donations are collected through its partnership with the United Way.”

OneApp is being integrated with leading property management software platforms to show that they have been approved through the One App guarantee. Of its participants, 75 percent are black; 62 percent are female; and 50 percent have a family. By using the OneApp Guarantee, qualified residents can get started with just $80 because of a partnership it has with Knock, which raised funds to cover most of the costs through charitable donations.

About the author

OneApp accepts the financial responsibility of applicants by providing upfront costs such as the rent deposit and first month’s rent and guarantees renters will pay each month.

Paul Bergeron has been reporting on the apartment industry since 2002 and served 20 years as editor-in-chief for the National Apartment Association’s UNITS magazine. He currently is editor of his LinkedIn media platform, Thought Leadership Today, and can be reached at pbergeron333@gmail.com.

Guaranteed Rent Company Could Be Boost for Struggling Landlords

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