Understanding how to run a credit check on a tenant is essential in choosing a responsible and stable renter who will pay rent on time.
This article examines the steps needed to run a legal credit check on prospective tenants after obtaining their written authorization and collecting applicable fees.
Why Run a Credit Check on a Tenant?
As a landlord, you may have already learned how to run a credit check on a tenant.
One of the primary purposes is to gain critical insight into a renter’s job stability, credit history, and ability to timely pay rent.
It also helps you determine whether the tenant can afford to live in your rental property.
What Do Tenant Credit Checks Look For?
Tenant credit checks look for the following information to help you decide the risk of a potential renter:
- Job and financial stability
- Consistent income amount
- Credit score (medium to high scores)
- No bankruptcies
- No late or delinquent payments on rent, utilities, student loans, or car loans
- No blemishes on credit history
- No judgments against the tenant
- No criminal convictions
- No pending legal issues (e.g., personal injury lawsuit)
- Past evictions (allowed in some states)
What to Look for in a Credit Score
When conducting a credit check, property owners may automatically get a tenant’s credit score from the three major credit reporting agencies because the numbers often come with the credit report.
The FICO score is the most commonly used credit score. It ranges from 300 to 850, with any score above 670 considered good.
If you reject a tenant for negative information on their credit report, you are required to provide the tenant with an adverse action notice which must include the name, address, and phone number of the credit bureau. IMPORTANT
The notice must also advise the tenant that they have a right to request a free copy of their report within 60 days and that the credit bureau did not decide to reject it.
This is a requirement of the federal Fair Credit Reporting Act.
What Information Does a Landlord Need for a Credit Check?
You can quickly gather the information needed for a credit check from a completed rental application.
As a landlord, you will need a prospective tenant’s name, address, and social security number, or individual taxpayer identification number.
You must obtain written permission authorizing you to run a credit check and you can include that request within the rental application. IMPORTANT
There is a process to check your tenant’s credit, and you will need specific documentation before you can access their credit history and report. The information you need to perform a credit check includes the following:
The Tenant’s Completed Rental Application
The first thing you will need is a completed rental application from the tenant. This will provide information about their income, employment, rental history, and a cursory look at their stability as a tenant. It also may offer some information you will need to identify them when checking their credit.
The Tenant’s Authorization
You must have the tenant’s consent to check their credit by law. In your application process, you must inform the tenant that you intend to check their credit and receive their express permission. With the tenant’s authorization, you will only need one other bit of information.
The Landlord Verification
You will need to provide landlord verification, verifying that you are the owner of the property which the prospective tenant wants to rent. This verification may include the proposed lease terms, as well.
How to Run a Credit Check on a Tenant
How do property owners check credit? The primary steps to take when running a credit check are:
- Use the rental application to verify the tenant’s full name, date of birth, current address, and social security number.
- Request written permission from the tenant to run a credit check.
- Collect any fees needed to run the credit check or screening.
- Confirm to the selected credit bureau that you are the landlord of the rental property.
- Run the credit check and receive instant results.
As a landlord, if you have many applicants, you do not need to run a credit check on each one.
Analyze the applications and request fees only from the tenants who initially meet your standard qualifications (e.g., stable employment or an acceptable debt-to-income ratio).
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 main credit reporting agencies now offer credit reports and tenant screening services, many of which provide a background check in addition to the basic credit check and credit score:
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.
For instance, New York limits the fee landlords can charge to the actual credit and background check cost but no more than $20.
Keep in mind you need the applicant’s authorization to run a background check.
To avoid paying multiple times, a tenant may obtain their current credit report. Keep in mind that landlords do not have to accept a copy in some states and can often request fees to pull a new credit report. TIP
After you use our rental application to screen applicants, and conduct credit and background checks, send our Lease Agreement to those you want to offer tenancy to.
