It can be difficult for candidates with poor credit to secure housing in such a fierce rental market, but landlords must perform these inspections to safeguard themselves and their properties. Consumer credit files and other information are collected and sold by private credit reporting organizations. Performing a tenant credit check with at least one credit reporting agency is necessary to determine how financially responsible the application is and whether potential renters should be approved. But what exactly is involved in the rental credit check process? Why is it so important to run this check? In this post, we’ll discuss how to run a credit check for landlords who need more guidance on what to look out for when screening potential renters.
What Is a Rental Credit Check?
As a landlord, credit check reports allow you to verify the financial trustworthiness of your potential tenant. A renter’s credit is evaluated to determine if they’re going to be able to pay their rent on time each month, if they’ve had any recent evictions, their debt burden, and if any severe credit mistakes mar their report. Equifax, Experian, and TransUnion are the three credit bureaus that a landlord can utilize to run a credit check for renters’ applications. A landlord can use one or all of the “Big 3” credit bureaus to understand a potential tenant’s solvency and financial management.
Why Are Tenant Credit Checks Important?
Landlords typically want to run credit checks to learn more about an applicant’s financial background. Checking a potential tenant’s credit report can provide you with the information you need to make an informed choice of a lessee. Through a tenant credit check, you’ll glean insights into:
● Payment Habits
A potential renter’s financial history demonstrates their trustworthiness and consistency in paying bills. If a credit check finds that a borrower has made on-time payments on many accounts over a period of time, that person is likely reliable. A variety of things can influence stability, but a financially secure individual is a possible renter who can meet their financial commitments and has proven that ability over time. Landlords look at credit records to forecast how the individual who will be renting the home will behave and whether they can be trusted to consistently pay their rent on time.
● Rental History
Landlords can use credit checks to discover more about a potential tenant’s previous renting history for the past seven years. A tenant’s renting history is used to predict their conduct in future leasing scenarios. A tenant credit check will reveal any previous landlord that submitted a tenant’s payment history to a credit bureau. Landlords might examine a credit check for a tenant to discover if a prior landlord is owed back rent or to look up a tenant’s rental history to identify where they’ve lived and inquire about their leasing agreements.
Debts influence the capacity of a renter to afford a particular lease. After all, they should be able to pay their rent and any other bills on time every month. A credit report check for landlords shows how much debt a potential renter has because too much debt will make it difficult for them to pay their rent each month, therefore rendering them an unreliable tenant.
● Accounts Payments
Both open and terminated accounts are shown on credit reports. Open accounts are generally revolving credit, such as a credit card, with a monthly payment due until the entire debt is paid off. Closed accounts may be paid in full or may still owe money to the creditor. “Satisfied accounts” appear on credit checks and refer to accounts that have been paid in full.
Landlords look at credit records to discover if a tenant has filed for bankruptcy. Bankruptcies can last up to ten years on credit records. A bankruptcy record enables a landlord to view all of the accounts and firms involved in the bankruptcy of a prospective tenant. A potential renter who has had their bankruptcy dismissed is typically a better choice than one who is still in the process of filing. If bankruptcy is underway, a tenant may be released of all existing financial responsibilities, including any remaining rental payments owing to a landlord. As a result, landlords examine a rent credit check to ensure that no bankruptcy proceedings are underway.
What Information Is Required to Run a Tenant Credit Check?
To run a credit check on a potential tenant, you’ll need a potential tenant’s:
- Permission to run the check
- Full name
- Current address
- Phone number
- Social Security number or ITIN (Individual Taxpayer Identification Number)
Make sure to disclose the amount of any credit fee you charge to potential renters.
How Much Does a Tenant Credit Check Cost?
In most areas, charging potential renters a fee to cover the cost of the renter credit check is permitted. Any credit check charge should be proportional to the credit check cost you pay, which typically ranges from $30 to $75. Make sure to check your local guidelines. For example, California establishes a maximum screening price when taking a credit check charge and requires landlords to submit an itemized receipt. Make sure potential renters are aware of the cost and purpose of a credit check charge. Be sure to clarify that it is not a holding deposit and does not guarantee the rental unit.
Also, if you anticipate a high number of applications, it’s best not to take all fees. You shouldn’t spend your time (or the money of your prospective tenants) collecting fees from unworthy candidates this way. Instead, look through the applications first and run a credit check only on those who are realistic prospects. It’s important to remember that charging a credit check for tenants fee is prohibited if you don’t use it for the claimed purpose. In other words, you should return any credit check costs you don’t utilize for that reason.
Are There Credit Check Services Available for Landlords?
If you’re researching how to do a credit check, you’ll know that the information can be gathered from one of the credit bureaus. However, performing these tedious checks probably isn’t what you were expecting when starting your business. For this task, it’s better to turn to the professionals when obtaining a credit report for landlords. The most important thing you can do to secure your rental property is to hire professional help to check the renter’s credit, criminal, and eviction histories and estimate their income. A landlord can use the American Apartment Owners Association’s tenant screening services to conduct an online renters credit check and criminal background check in minutes. You’ll make better financial choices and locate quality renters when you have more information about them.
How to Run a Credit Check on a Tenant
A tenant credit report is tailored to fit the demands of landlords. Working with a company specializing in online credit checks for landlords guarantees that you have all of the information you need to make the best decision possible for your property. The first step in how to run a credit check is to go to the American Apartment Owners Association’s (AAOA) credit check services page and get a free rental application form, as well as purchase a tenant screening package. Enter your tenant information and gain instant access to various reports including evictions, background checks, and other screening services. Your tenants will then receive an email with a unique link that they must click to authenticate their identity and permit you to view their rental credit reports. You’ll get an email with a link to their credit report and score when they give you permission. This does not necessitate any additional documents or underwriting.
How Long Does It Take to Run a Tenant Credit Check?
It can take 2-10 days for most agencies to gain clearance to perform a credit check on potential tenants. The findings of your credit report are usually available within minutes after you’ve been authorized.
How To Interpret a Credit Check Report
If an applicant owes a medical bill or is regaining work, they may have negative entries on their credit record or a lower tenant credit score, but they may still be a suitable fit for your rental property. You should consider all aspects of the report before making a final decision. Here are a few considerations to keep in mind:
● If the renter has a strong credit score
They are more likely to pay their payments on time and have a positive income-to-debt ratio if the tenant credit check form returns a high score. Before making a final selection and signing a leasing agreement, make sure to do a background check.
● If the tenant has no previous credit history
A person’s lack of credit history can be due to a variety of factors, including:
- They’re young and haven’t yet established credit history.
- Banks are a source of concern for them.
- They recently relocated from another country.
- They’re giving you inaccurate or deceptive information.
You can utilize job verification and criminal background checks to verify the information they gave in their application if the tenant credit check comes up empty.
● If the tenant has a poor credit history
If you perform a credit check on a renter and discover that they have a poor credit score, make sure to read the credit report thoroughly. It’s common that there are errors or issues that the renter may be unaware of but is prepared to address. Some tenants may have had financial difficulties in the past but are striving to repair their credit scores. Therefore, it may be worth discussing those parts of a credit report with the potential tenant.
Check Your Tenants Today
You must consider all of the information available to you when screening potential tenants for your rental homes to guarantee that you are selecting reputable tenants. A tenant credit report, which reveals the renter’s creditworthiness and payment history, is one piece of that information puzzle. You will be alerted about any financial difficulties or concerns that may be red flags against an applicant. As part of your entire credit screening procedure, the American Apartment Owners Association makes it simple to do a tenant credit check. Contact us today to start your journey to reliable renting and tenant screening.