A Tenant Credit Check: The Crystal Ball That Helps Landlords Select Good Tenants
Remember that time at an amusement park when you saw Madame Zelda with a crystal ball, who said she could use it to see the future? Well, fast forward from child to landlord, and we would still like a way to see into the future to know which applicant will make the best tenant. Good news! There is something almost as good, although not as mysterious, as a crystal ball to predict a good renter. A tenant credit check.
A credit report is a powerful part of the tenant screening process. It contains information on an individual’s past financial behavior, which is a strong indicator in how they will manage their payments in the future. Will they pay their rent, or skip out? Landlords must be as knowledgeable as possible to select the best tenants for their rental property. Tenant credit checks help do that.
Here are four vital pieces of information that a tenant credit report provides that helps landlords select top tenants.
A person’s social security number is one of a kind, similar in some ways to a fingerprint. A tenant credit check will flag if the social the applicant is claiming does not match the number that is associated with their name in the system. Instances of identity theft are increasing, and an applicant who is using another person’s information is committing a crime. Maybe they have past financial problems, or a criminal history. Whatever the reason, it pays for landlords to uncover this misrepresentation before the applicant becomes a tenant. If you see a discrepancy in an applicant’s social security number, ask follow up questions and request another form of identification.
Sheds light on recent payment habits.
Gaining access to a potential renter’s payment habits allows valuable insight into a person’s overall financial state. An applicant who has missed several recent payments is a risky bet. A savvy landlord can review the tenant credit check and use the data to decide whether or not the applicant would pay his rent on time. Conversely, a credit report with no late pays can show the landlord the individual would most likely be a good, rent-paying tenant.
Uncovers public records.
Along with recent payment records, a collection, judgment, or bankruptcy will show up on tenant credit check. These are serious delinquencies that impact a person’s finances in a negative way. It pays for a landlord to be aware of these financial missteps so he can decide if the information is enough to cause the applicant to be denied. It’s a good idea if a public record is present to ask the applicant about it, and offer a chance to explain before you make the decision.
Divulges debt loads.
A tenant credit check that shows lots of credit cards maxed out is a red flag. Large amounts of debt could mean the applicant is living above his means. Someone who carries lots of debt is less financially stable, and a short layoff or illness could completely wipe them out. Look at high debt critically, and compare it to their monthly income. If the leftover isn’t enough to cover your rent, take a pass.
Keep in mind it’s important to set up best practices in order to screen tenants in a fair, consistent manner. Decide up front what instances will determine a tenant being turned down. Don’t pull a tenant credit check on some tenants and let others slide because they look your niece or drive a late model car. Weigh every applicant with the same criteria.
Performing tenant background checks is essential to protect your investment, and save you from the headache of evicting a renter who won’t pay. A tenant credit check may not sound as fun as a crystal ball, but it’s even more effective for predicting the future. By utilizing a tenant credit check, you can feel confident you will reach an informed decision that will minimize the risk of renting to the wrong person.
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