Running a credit check on a prospective tenant is a vital step in ensuring that you’re renting to someone who is financially responsible. A thorough credit check can help you avoid potential problems like missed rent payments or costly eviction proceedings. Here’s a streamlined guide on how to efficiently run a credit check on a tenant.
What a Tenant Credit Check Reveals
- Credit Score: A snapshot of the tenant’s financial health.
- SSN Verification: Confirms the identity of the applicant.
- Employment History: Provides insight into job stability.
- Fraud Indicators: Flags any suspicious activity.
- Address History: Tracks past residences, indicating stability.
- Payment History: Highlights any late or missed payments.
- Collection Accounts: Lists unpaid debts sent to collections.
- Public Records: Includes bankruptcies, liens, or judgments.
Navigating the tenant screening process involves several critical steps, such as the submission of a rental application, obtaining necessary permissions to analyze credit reports, and ensuring a transparent and fair evaluation of potential tenants.
Step 1: Obtain Permission and Gather Information
Before you begin, you must obtain written permission from the tenant to run a credit check. This is not only a legal requirement but also a best practice to maintain transparency. Along with the permission, collect the following key information:
- Full Legal Name
- Social Security Number (SSN)
- Date of Birth
- Current Address and Employment Details
Ensure that this information is accurate, as discrepancies can delay the credit check process.
Step 2: Choose a Reliable Tenant Screening Service
Selecting a reputable online tenant screening service can simplify the process. These services typically partner with major credit bureaus like Experian, Equifax, and TransUnion to provide comprehensive reports. Look for a service that offers:
- Credit Score
- Detailed Credit History
- Public Records (e.g., bankruptcies, judgments)
- Past Addresses
- Employment Verification
Some services also include background checks, which can provide additional peace of mind.
Step 3: Review the Tenant’s Credit Report
Once you receive the credit report, focus on key areas that will indicate the tenant’s financial reliability:
- Credit Score: A higher score generally indicates better financial responsibility. Determine your minimum acceptable score beforehand.
- Payment History: Look for consistent, on-time payments. Repeated late payments or delinquencies are red flags.
- Debt Load: Assess the tenant’s current debt obligations. High debt relative to income could be a warning sign.
- Public Records: Check for any bankruptcies, judgments, or liens, as these can indicate financial instability.
Step 4: Interpret the Findings
Understanding the credit report is crucial. A good credit score doesn’t always tell the full story. Consider qualitative factors:
- Consistency: Have there been any recent changes in payment behavior?
- Type of Debt: Is the tenant managing multiple credit cards, or is the debt tied to something like a mortgage?
- Inquiries: Numerous recent credit inquiries can be a red flag, indicating financial stress.
Handling Applicants with Low Credit Scores
Not all applicants with low credit scores are unsuitable tenants. Some may have faced temporary setbacks but are otherwise reliable. In these cases, consider:
- Requiring a Co-Signer: A financially stable co-signer can provide an additional layer of security.
- Setting Milestones: Offer conditional acceptance based on the tenant meeting certain financial milestones, like timely rent payments or reducing debt.
- Charging a Higher Deposit: If local laws permit, a larger security deposit can mitigate potential risks.
Step 5: Comply with Legal Requirements
If you decide not to rent to a tenant based on their credit report, you are legally required to notify them with an adverse action notice. This notice must include the reason for the denial and information on how they can obtain a copy of their credit report.
Frequently Asked Questions
Where to Run Credit Reports for Tenants?
You can order credit reports online from the credit bureau of your choice with immediate receipt of results.
In addition, the three leading credit reporting agencies now offer credit reports and tenant screening services, many of which provide a background check in addition to the primary credit check and credit score:
- Experian
- Equifax
- TransUnion
How Much is a Credit Check for a Tenant?
The cost typically ranges from $25 to $50, depending on whether you request only a credit report or additional background checks.
Some states limit the amount you can charge a tenant for credit and background checks.
How Long Does It Take to Run a Tenant Credit Check?
A tenant credit check typically takes just a few minutes to process once you have the necessary information. Most online services deliver results instantly.
What Credit Score Should I Accept for a Tenant?
Acceptable credit scores can vary, but many landlords look for a score of at least 620. However, consider other factors like payment history and debt levels in your decision.
Does Running a Credit Check Hurt the Tenant’s Credit Score?
No, running a credit check for rental purposes is considered a “soft inquiry” and does not affect the tenant’s credit score.
