When you are screening potential tenants for your rental properties, you need to take into account sufficient information to ensure you are choosing quality tenants. One piece of that information puzzle is a tenant credit report, which demonstrates the renter’s credit worthiness and history of timely payments. When you take the time to check tenant credit, you will be informed about potential financial problems or concerns that might be red flags against an applicant. The American Apartment Owners Association makes it easy to run tenant credit checks as part of your overall credit screening process.
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What Are Tenant Credit Checks?
A tenant credit check is run by landlords on potential renters to screen tenants who have financial or personal problems. A rental credit check shows the potential tenant’s credit score as well as details about his or her recent credit history, including instances of non-payment or delinquencies. Landlord credit checks allow you to have a clear picture of the potential tenant’s financial status and reliability before you sign a lease. As such, they protect you from getting into a legally binding agreement with someone incapable of holding up his or her end of the bargain via timely rent payments.
Since the landlord credit check shows the renter’s income and his or her debts, you can decide whether the renter can afford your apartment. It’s generally accepted that rent should constitute no more than one-third of your expenses per month. If you learn that your tenant has a high debt-to-income ratio, or that your rent would constitute greater than one-third of his or her income, it is in everyone’s interest you deny this person’s application. When a renter is unable to afford an apartment, he or she may fall behind on other payments (such as a car loan) to make rent, or slowly fall behind on the rent.
How Does a Landlord Credit Check Work?
In a credit check, creditors report credit details, whether current or past due, so that an applicant’s credit score can be measured. You will receive a list of all the renter’s debts to review along with a history of payments. You’ll be able to tell at a glance if renters pay their bills on time, if they carry a balance on credit cards or if they pay them off in full, and their overall credit score.
You may elect to pay for a criminal background check as well as an eviction check. This will show you whether the potential tenant has ever been arrested or evicted. Landlord credit checks put the information you need to know in context, so you can understand how an applicant compares to your standard renter, or even compare two applicants to each other. If you’ve been avoiding credit checks because you think it will be complicated, don’t worry. It’s easy to glean the most important information by scanning the report.
How to Run a Credit Check on a Tenant
We often get asked how to run a credit check for a prospective tenant. While the process may seem overwhelming at first, it’s really quite simple.
Step 1 – Join AAOA. Registration is quick, easy, and free membership is always 100% free, no credit card required. Join AAOA today.
Step 2 – Use a Rental Application with a Signature Release. While many credit check services may not require a signed release, you should obtain one. AAOA’s free rental application form includes the proper language and space to collect the tenant’s signature.
Step 3 – Order a Credit Report for Landlords. AAOA offers 2 methods to obtain a tenant background check. The first we call tenant cooperation. This means after placing your order the tenant will receive an email with a unique link. The link will take them to a secure website to confirm their identity. Once completed you will receive an email notification to view the tenant credit report within your account. The second method is to become underwritten. This requires an additional fee, documentation, and to pass an onsite physical inspection. Underwriting is recommended for AAOA members who have at least 10 rental units, learn how it works.
Now that you’ve learned how to do a credit check, the next step would be selecting the right tenant and having them sign a lease agreement.
Make Better Decisions With Tenant Credit Checks
It’s not unusual for renters to have problems on their credit report. Often, that’s the reason they are renting to begin with, because their credit does not allow them to buy a house. However, this does not necessarily make them a poor choice.
A renter’s credit check will show you some of the details about his or her credit history, allowing you to see if the prospective tenant has made wise financial decisions in recent months.
Specific items to look for include:
- Late payment or non-payment
- High debt-to-income ratio
- Gap in employment history or income
- Insufficient income to afford rent
- Criminal convictions
- Prior eviction
If you spot any of these red flags, decide how you feel comfortable proceeding. You might opt not to take a chance on a renter with an arrest record or outstanding debts when a qualified applicant is interested. You may decide to ask the renter a few questions to determine if problems — like bankruptcies or a period of delinquency — were due to unexpected financial situations that have since been rectified. Ultimately, landlord credit checks make the process transparent for the renter and for you by painting the bigger picture, so, you will be more informed and able to make better decisions about your rentals.
The Consequences of Not Checking Credit
Checking credit for renters does mean extra work for you. If you have a lot of empty apartments to fill, you may be tempted to skip a credit check for a friend of a friend or someone who seems trustworthy.
Unfortunately, these assumptions can cost you. If you skip a credit check, you could wind up with a tenant who has a track record of missed payments or who is struggling with credit card balances. You could end up with a tenant who has a criminal history, and who threatens the safety of residents in your multifamily unit. Is this a risk you really want to run?
Why Choose AAOA’s Services?
AAOA’s tenant screening services address the needs of landlords, property managers, real estate agents and others by providing:
- All major credit bureuas (Experian, Equifax, and TransUnion)
- Up-to-date records and new resources to help choose the right tenant
- A site with proven security measures for the utmost in consumer data protection
- The best US based customer support and service, call our toll free number 866.272.8400
- No fee membership, just create a Free Membership account
- Value Members save when ordering a tenant background or other product
- All Members can request, order, find, and view tenant credit checks within their account 24/7
Start the Process to Check Tenant Credit Today!
A renter credit report is specifically designed to meet landlords’ needs. Working with a business that specializes in online credit checks for landlords ensures you have the exact information you need to make the right decision for your property. The American Apartment Owners Association offers credit checks for renters that work quickly to get you the information you need.
To get started, download a free rental application form and purchase your tenant screening package from the American Apartment Owners Association. Enter your tenant information and get immediate access to many reports which includes evictions, background checks and other screening services. Then, your tenants will receive an email with a unique link they use to confirm their identity and provide permission for you to see the tenant credit report. As soon as they provide permission, you will receive an email with a link to the credit report and score. This requires no underwriting or additional documentation. You can also skip this tenant cooperation method by becoming underwritten.
Don’t make the mistake of renting to people who may not have a solid financial track record. Purchase your complete tenant screening package with a renter credit report today and take advantage of our $10-off special offer for American Apartment Owners Association Value Members.