With 'No Credit Check' etched in stone at every Rent to Own in America, rental application approval would seem to be a 'no-brainer'. In reality, Rent to Own managers, irregardless of any stated company policy, tend operate at one of two extremes.

• If you have a pulse and the first week... your approved. (pulse optional)

or

• Require a minimum of 4 personal references. First month up front. 3 months on the job. No delivery until all application information is verified.

Some of us fluctuate between the two extremes depending on our BOR goals for the month. If it's a particularly harsh month, anyone who has two nickels to rub together gets a TV. As with most things, the truth lies somewhere in between.

The key to long term success of any application approval system is consistency. Scoring applications based on a fixed scale can deliver company wide consistency, and improve your bottom line.

No matter how you look at it... using a 'sub-prime' credit reporting agency to check a customers past payment history outside the Rent to Own industry is a credit check. 

Unlike a credit check, scoring requires no past payment history information. It is a method of assigning a value to a series of variables regarding your prospective customer

For example, all Rent to Own applications ask 'How long have you lived at your current address'? Scoring would simply assign a number value to each of the possible answers...

"How long have you been employed at this job'?

...And so on for every question asked on the rental application. Add up all the numbers and you get a 'Score' for the application.

You can 'weight' the variables by increasing or decreasing the range of possible scores. For example...

Rufus Mudsuckers Rent Emporium  has learned over time that customers working at the same job for 5 months renew their rental agreement 25% longer than those on the job for less than 3 months. He 'weights' the time on job number like this...

An application gets no points for 0-3 months. and 8 points for Over 12 months.

The weight given to each category is the critical factor, and will vary from company to company. Some RTO's will choose to put more weight on 'Time at your current address'. Others on the 'Number of Personal References'.

"Every rental application you have ever reviewed has been scored by you...even if subconsciously".

Using a company wide scoring guideline can bring much needed consistence to the process.

Setting up a scoring system

"If you want to know the future...look at the past"

Get the last 3 months worth of customer files. Divide them into 3 stacks.

• Paid Outs

• Renewed for more than 6 months

• Renewed for less than 3 months

Ignore agreements between 3 and 6 months in length. This will make the differences between profitable and unprofitable agreements more obvious.

Start with the Paid Outs. These are your best customers. Go through each rental application. Look for similarities. Time on the job...own a vehicle...has phone service etc. All these things are pieces of the puzzle.  

Repeat this process for agreements that were renewed for more than 6 months. These agreements are profitable.

Repeat for agreements renewed for less than 3 months. These are the money losers. You will never avoid these completely, but over time, a scoring system will reduce your exposure to unprofitable, short term agreements.

Put this newly acquired data to use
Implement a scoring system based on what you learned. If most of your paid outs lived at the same address for more than 1 year, stayed at the same job for 3 months, and have a working phone, weight these responses more heavily on your scale by increasing their value (ie 5-10)

Things that don't seem to affect length of agreement should be rated on a lower scale to reduce their 'weight' (ie 1-3).

Every time an agreement is terminated, keep a running list of two things...

• Application Score

• Length of agreement

After 3 months of using your new system, you will be ready to experiment with minimum acceptable scores. Use extreme caution during implementation. Better to start low and work your way up than risk turning away good customers.

You will find that, over time, everything is predictable.