Why You Need To Address Your Unscorable Rate.
Johnny Bravo??
Helping Landlords Combat Fraud | Exposing Fraudster Tactics | Synthetic Fraud & Identity Theft Detection
Here for the latest trends, insights, and tips to help property managers and rental operators find the best possible residents in a changing landscape.
An advantage I have by working with large multifamily (and single-family) operators is that I get unique insights into what struggles they are experiencing at scale.
Over the last few months specifically, there's a trend that is popping up more and more. The topic of a company's unscorable rate is front and center in planning meetings.
I know of many multifamily and single-family home providers focused on reducing their unscorable rate in 2024 as a mission-critical strategic initiative.
Maybe they're trying to break into a new asset class (e.g. student or affordable housing), or maybe they are simply seeing a significant portion of their applications coming back as unscorable.
One conversation comes to mind where they mentioned a staggering 23% unscorable rate.
23%!!!!!
That means that almost one out of every four applicant's screening results showed no available score.
Having an unscorable rate that high has major implications for the business.
What Are "Unscorables"?
So that we're on the same page I'm using the terms "unscorable", "thin file", and "credit invisible" interchangeably.
While there are nuances to each term, the focus today is on any consumer with no, or not enough, credit history to return a score during the screening process.
Hence, they are unscorable.
An applicant that is "Unscorable" is a consumer with little or no credit history.
If I had to explain this to my 8yr old, I'd say that when it comes to credit, they either don't have it or don't use it.
To give some perspective, Transunion estimates say anywhere from 45 million to almost 70 million people are considered to be in this bucket. That's 17-27% of the adult population in the US.
Experian puts their estimate at approximately 62 million Americans.
And while everyone's situation is different, there are a few common reasons that can translate into an applicant being unscorable:
Except for the synthetic identity situation (Lean about how fraudsters are playing a long con here: https://www.dhirubhai.net/newsletters/screening-for-the-now-7008558325856444416/) none of these reasons would directly limit them from being a great resident.
They simply lack the necessary data points and specific financial history required by traditional credit scoring models such as FICO or VantageScores.
But even between the two most common scoring models, there are many variations. Each one scores a consumer's credit report somewhat differently and has slightly different requirements, at a minimum, to populate a credit score.
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For FICO, the minimum requirements to be scoreable is to have a credit account that's at least six months old and activity on a tradeline during the previous six months (they don't need to be the same tradelines).
For VantageScore, you'll only need one account, even if the account is less than six months old.
What Happens When Your Unscorable Rate Is Too High
Managing your unscorable rate can have a significant impact on the bottom line.
Even if your unscorable rate is not as high as 23% I mentioned previously, each percentage point increase has a host of issues associated with it.
While many of these outcomes from a high unscorable rate are self-explanatory, it's important to recognize them and call out the impact they'd have on your business.
Doubles your lead-to-lease efforts and cost: If you auto-deny unscorable applicants then at a minimum you will have to screen at least one more applicant to fill that vacancy. That's double the screening cost automatically. You also have to tour again, perhaps re-post the vacancy if you removed it during screening, and a host of other double efforts.
You miss out on potentially good applicants: A TU study examined New-To-Credit consumers and found that many of them would be considered similar, if not better, risks based on their behaviors over a two-year period. While this was more specific to financial offerings, for any landlord that uses traditional credit scores for screening, the same concept could apply. There are quality residents that you'll miss out on if your screening solution can't accurately assess their potential as a resident.
You have a smaller pool of applicants: This is as straightforward as it sounds. If you can't score any portion of the applicant population, then your pool of potential applicants is reduced. This could translate into additional costs to find quality applicants and long lead-to-lease timeframes. Or take the example of a landlord looking to break into a new market such as student, affordable, or senior housing. If you're looking to expand into one of these cohorts, minimizing your unscorable rate is mission-critical.
Potential for reputational damage: While this is a bit harder to quantify, there are communities online where applicants can provide reviews of a PM company or property. Any negative comments related to your inability to rent to someone, saying you couldn't score them, could have potentially negative effects on your reputation.
Results may not be as accurate as they could be: If your unscorable rate is "too high" then the cause may be because your screening solution is not as accurate as it could be. Higher quality or more relevant data could be the difference between a scorable applicant and an unscorable one. For example, Transunion found that using trended and alternative credit data "enables lenders to score more consumers and expand financial access, especially relevant for thin-file and new-to-credit consumers. The combination provides a more well-rounded yet nuanced view of consumer credit risk, and significantly outperforms traditional credit data across the lending spectrum."
Longer unit vacancies: The more results that come back as unscorable the more applicants you'll have to screen, the more tours you'll have to give, the more marketing you'll have to do, etc etc. All of these translate to longer times that a unit will sit vacant not generating revenue.
Misalignment on new strategic initiatives: The two examples I hear most often are a landlord trying to either break into a new market (senior, affordable, student, etc) or trying to break into a new region (Dallas, San Diego, Phoenix, etc). But when the screening process has an abnormally high unscorable rate, that severely limits the success of that initiative, or otherwise delays its success. The last thing any leader wants is for an initiave they championed to take longer, cost more, or misfire against expectations.
These are just some of the potential outcomes you could see when your unscorable rate is too high.
Every business is different so it's important to have the right approach and plan to reduce your unscorable rate without sacrificing other aspects of your business.
Johnny, Can you help?
Maybe, let's chat. If you think your unscorable rate is higher than it should be, or you want to make sure your screening solution is finding you only the best possible residents; reach out to me or comment below.
Additional References & Resources:
Disclaimer: The opinions and views expressed in this article do not necessarily represent the views of my employer. The information provided is intended for general informational purposes only and may not be suitable for your specific circumstances. The information presented may also be subject to change and may not be up-to-date. Therefore, you should not rely on this information as legal, financial, or professional advice. Please consult with your own legal or financial advisors and abide by all applicable laws, rules, and regulations related to your situation.
Photo by Pierre Bamin
Reducing the unscorable rate indeed opens up new realms of opportunity. As Aristotle once said, "Quality is not an act, it is a habit." ?? By enhancing your screening process, you're not just avoiding potential issues; you're actively building a culture of excellence—transforming challenges into opportunities. Keep up the great work, Johnny! ???? #InnovateToElevate #ScreeningSuccess