Why all landlords should credit check their tenants
Finding the perfect tenant is of the most importance. You’re looking for the dream tenant who pays rent on time, gets along with you or everyone in the property, doesn’t smoke, is clean--the list goes on. While there are plenty of different strategies for weeding out bad tenants, one strategy every landlord should use are credit checks when screening potential clients.
Using credit reports for prospective tenants
A credit report can provide a “gold mine” of information about a prospective tenant and includes information about their purchasing and payment tendencies for the past 7 to 10 years. Here is what a landlord can expect to find in a credit report:
- If the tenant has ever filed for bankruptcy
- If the tenant has been late or failed to pay rent or any other bills
- If the tenant has ever been evicted (this information may not be available in every state)
If the tenant has ever been involved in any type of lawsuit
If they are financially active enough to establish a credit history at all (which could be a positive or negative)
What does the credit score, or FICO score, mean?
When obtaining a credit report, you may also get their credit, or “FICO” score. This number ranges from 300 to 850 and indicates the chance that the individual will default on payments based on their financial history.
A high credit score shows less risk and generally any score of 650 or higher is considered less risky. It’s important not to solely base an approval or denial of an applicant on their credit score, as other factors like taking good care of the property and getting along with other tenants are also characteristics of a good tenant.
How to run a credit check on a potential tenant
To run a credit check, you’ll need the prospective tenant’s name, address, and Social Security number or ITIN, this information should typically be on the rental application you ask prospects to complete. Credit checks usually come from one of three credit bureau--Equifax, TransUnion or Experian--but the credit request must be made through a credit reporting agency or tenant screening service.
Can the landlord collect credit check fees from tenants?
It’s typical (and legal in most states) for a landlord to charge prospective tenants a fee for the cost of the credit report itself, which is about $30 to $50.
What if tenants have a poor credit report?
If the tenant’s credit report is bad and they also have other characteristics that make them a less than ideal tenant, you are legally allowed to deny their application. However, you must give the prospective tenant the name and address of the agency that reported the negative credit information. You must also let that person know that he can obtain a copy of the report within 60 days from the agency that reported the negative information.
Finding the right tenant
A credit score should act as a small piece of the puzzle when considering a potential tenant application. Other factors like communication skills, timeliness and cleanliness should also be considered. A credit check can give landlords a look into an applicant’s financial history, which can offer warning signs on their ability to pay rent.
What other screening processes have you run or experienced in the process of finding the right tenant? Share them below.