Application fees cover the value of my time to process the application, and indicate that the prospective tenant is serious and capable of at least having the fee on hand.
I use a point system to qualify tenants. It sets a standard that applies equally to all prospective tenants. Since my business partner handled discrimination complaints for a large organization the point system is carefully documented so as to avoid even the appearance of discrimination. If two applicants manage to score exactly equally then it's a business decision that usually boils down to the first one to produce a completed application.