Firms that oversee large, upscale apartment complexes used to be able to set the bar high when reviewing potential tenants' credit histories. Many would turn away applicants with accounts in collections, foreclosures or outstanding medical debts.
But even as more people come back to rental housing, landlords are finding they can't be as picky as in the past because more and more Indianapolis-area residents bring with them credit baggage from unpaid medical bills or home foreclosures.
"Maybe 70 percent of [tenant screening] reports we run come back with" medical bill accounts in collections, said Raed Zidan, president of Zidan Management Group Inc., which owns 4,000 apartment units, mostly in Indianapolis. "We just ignore [medical debts] completely now."
Zidan said his company turns a blind eye to past-due medical bills because medical emergencies not covered by insurance can and do happen to people in all walks of life.
"Anyone could be put in that situation," Zidan said, adding that the trend has been a growing, longer-term problem.
A newer and sometimes thornier issue, he and others said, is foreclosures.
In fact, Marion County and Indiana lead the nation in some of the most depressing statistics. Marion County ranked among the highest foreclosure rates among metropolitan areas in 2006, according to Realty-Trac, an online marketplace for foreclosure properties. At year end, 25,780 houses were in foreclosure in the county-about 6.7 percent of total households.
And 78,201 Hoosiers filed for personal bankruptcy in 2005, up from just 37,126 in 2000, according to the American Bankruptcy Institute.
Jill Herron, vice president of property and asset management for locally based Flaherty & Collins Inc., said her company is getting more and more applicants with home foreclosures in their credit reports.
"There was a time when [apartment managers] wouldn't take anyone with a foreclosure," she said. "Ten years ago, it was automatic in the industry."
Now, she said, credit-checking firms can provide more detailed information managers can use to make decisions. Reports can ferret out which bills potential tenants paid first-such as whether a person kept current on cable bills while falling behind on paying the mortgage.
Herron said if a potential tenant has a foreclosure in his credit report, he might still get consideration if his credit report is otherwise clean.
Zidan agreed, adding that aggressive mortgage lending led to a notable increase in area foreclosures since 2000. But both said the home foreclosures are sometimes the most problematic because consumers typically will forgo paying other bills trying to keep their houses, wrecking their credit scores in the process.
Most large apartment management companies turn to outside firms to manage background checks on tenants, ranging from credit reports to criminal history checks. For example, Chicago-based Real ID Inc. broke into the Indianapolis market six months ago and now does tenant screening for 2,500 local units.
Indianapolis-area landlords generally demand a lower overall credit score for potential tenants than in other markets, according to Real ID Inc. Director of Operations Sam Levin.
In Indianapolis, there tends to be more tenant turnover than in other markets such as Chicago, and tenants tend to be younger residents who may have made credit card mistakes, he said.
While apartment companies can set the bar higher in other markets, most Indianapolis landlords accept tenants with lower-than-average FICO scores.
A FICO score is a formula developed by California-based Fair Isaacs Corp. that tracks credit history and rates consumers on their likelihood to default on future credit. In the United States, the three main credit reporting agencies-TransUnion, Equifax and Experian-all use versions of the formula to come up with a number they report.
FICO scores can range from 300 to 850, with the national median at about 720. According to credit company statistics, about 31 percent of consumers with scores in the 600 to 649 range will default on credit, with percentages skyrocketing as FICO scores get lower.
Most Indianapolis landlords are looking for individuals with a FICO score in the "upper 500s," or better, Levin said. He said Real ID ran 280 screenings for one Indianapolis client in January. Of those, only about 40 percent passed the landlord's cut-off point of a FICO score of at least 620.
Levin said his Indianapolis-based clients tell him many would-be tenants don't make the cut-off because they jumped to buy a home based on monthly mortgage fees, sacrificing a locked rate for cheap initial payments tied to a floating mortgage. Then, as the rates climbed, many couldn't afford the home.
But Levin puts part of the blame on mortgage firms, saying some took on home buyers who had histories of struggling to pay bills. In part, mortgage firms were willing to take the risk, Levin said, because mortgage insurance and federal programs would reimburse them the loss for certain loans that defaulted.
Many apartment owners are now trying to up the ante-starting targeted marketing campaigns meant to attract more qualified applicants. And some, Levin said, are even starting money-management classes for new, younger tenants.
The Indiana Apartment Association has also gotten into the game, setting up an educational Web page meant to dissuade those not yet financially ready to buy a home from making the plunge.
Messages left with Association President Lynne Sullivan weren't returned, but the Web site, www.homequiz.net, went live in July. On it, consumers are run through a series of questions to assess their readiness to buy a home, such as whether they can set aside 10 percent of the home's cost per year for maintenance.