To run a tenant credit check, you must collect the right information, get consent, and pay for a tenant screening service.
Why Should Landlords Run Tenant Credit Checks?
The best way to verify that applicants handle their financial obligations is to look at their credit reports. Someone with poor credit is more likely to be evicted in the future, resulting in average costs of $3,500 to $10,000.
When screening an applicant, a landlord can obtain a credit score or view the entire credit report. The credit score is essentially a summation of the credit report. It considers all the factors found in the applicant’s history and gives out a single number that rates the likelihood of handling their financial obligations responsibly.
If their credit history demonstrates poor financial management, they’re likely to continue having problems. This means that a landlord would certainly rather have someone with a higher credit score (625+) for their rental property.
What’s Included in a Credit Check for a Rental Applicant?
A credit report contains:
- Credit limit or loan amount for each account
- Account balances and payment history
- Dates of accounts opened
- Soft and hard inquiries
- Types of credit accounts opened (mortgage, student loan, vehicle loan, etc.)
- Bankruptcies
- Unpaid child support/alimony
- Collections accounts (unpaid balances that have been turned over to a collections agency to try to recoup the money)
All of this data forms a history that a landlord must collect to determine whether the applicant is likely to pay the rent.
How to Run a Credit Check on a Tenant
Here are the six main steps to run a credit check:
- Ask About Their Credit on the Application
- Get Consent
- Gather All Necessary Information
- Use a Professional Tenant Screening Service
- Ask For a Copy of Their Credit Report (Optional)
- Ask Clarifying Questions
1. Ask About Their Credit on the Application
This is the first step, even though it’s natural for a landlord to distrust what the applicant themselves put on the application.
However, asking a free-form question like “What will we find when we pull your credit report?” serves several purposes:
- Gives you a starting point. You’ll want to reject applicants below a predetermined baseline to preserve your time. For example, you might decide to immediately disqualify applicants below a 550 credit score.
- Keeps unwanted applicants out. Perhaps an underqualified applicant was hoping to apply and you’d overlook their credit score. Asking questions now and letting them know you’ll pull their credit later helps deter them from even applying.
- Gives you a comparison point. When it’s time to pull their credit report, you can compare that information to what they said on the application. If something doesn’t match, they either lied (and you should reject them), or something needs to be clarified (and you should ask them).
Landlords don’t have to trust the information given at this point, as everything will be verified in later steps. However, since it’s such an easy step, all landlords should do this.
Be sure to ask all applicants the same questions, or you could become the target of a discrimination lawsuit.
2. Get Consent
The Federal Credit Reporting Act (FCRA) requires landlords to obtain a tenant’s consent to run a credit check. Written consent can be given on the rental application form itself, on a separate consent form, or through a tenant screening service.
Be sure that your consent form mentions any way that you plan to gather information. For example, if you plan to talk to prior landlords, employers, or other references about their financial history, mention that on the release.
Have an attorney review your consent form to ensure you’re covered.
Landlord ID Verification
In addition to getting the tenant’s consent, most tenant screening services require verification that you are actually a property landlord. For example, a reputable company like Equifax won’t allow just anyone to pull a credit report for another person.
Landlords are usually required to provide:
- Proof they own the rental property.
- Proof of current residence. Some services will automatically match up your name to the tax records. You’ll be asked to provide additional information if they don’t match.
- Identification, such as a driver’s license.
3. Gather All Necessary Information
Some landlords prefer to use services that collect both the general rental application and the information needed for tenant screening. However, other landlords elect to have a separate application form, evaluate the applicants, and then decide who moves to the screening process.
To run a credit check, all you need is:
- Name
- Birthdate
- Social Security Number (sometimes)
While credit checks can still be pulled without an SSN, not all tenant screening services will allow you to move forward without one.
Also, many tenants are hesitant to give a landlord their SSN, but they will gladly give it to a tenant screening service. If you’re keeping the processes separate, remember that asking for an SSN might turn away some tenants.
4. Use a Professional Tenant Screening Service
Most landlords will use a tenant screening service at this point to pull reports. These screening services usually pull eviction history, criminal background reports, and credit reports. Some tenant screening companies will offer a financial report of the prospective tenant.
Landlords can also pull credit reports from the major credit bureaus, such as Equifax, Experian, and TransUnion.
Of course, pulling comprehensive screening reports will cost more money. However, in most states (Massachusetts is an exception), landlords can charge an application fee to offset that cost, so there’s no good reason not to do it.
Some landlords may want to pocket the application fee rather than ordering reports, but the small cost of getting a highly-vetted and qualified tenant is worth much more.
What Are the Best Credit Check Services?
We reviewed 33 different tenant screening services that provide credit reports. Our top 3 favorites were:
- CoreLogic’s MyRental (best overall)
- Avail (highest quality)
- RentSpree (best reports)
How Much Do Credit Reports Cost?
Some tenant screening companies provide credit reports à la carte, while others provide them as part of an all-in-one service.
A la carte services will typically offer credit checks for around $15 – $22, such as:
- LeaseRunner – $22
- CoreLogic’s MyRental – $14.99
- AAOA – $19.95
Comprehensive services that offer background, credit, and renter histories generally cost around $30 – $55, such as:
- SmartMove – $39.99
- TurboTenant – $55
- Zillow – $35
5. Ask For a Copy of Their Credit Report (Optional)
This option is free for landlords who don’t want to pay for full screening reports. Asking for a copy helps landlords who want to keep the application money, can’t charge an application fee, or choose to keep costs lower for applicants by not charging a fee.
Everyone is entitled to a free copy of their credit report from each of the three main credit bureaus once per year. The applicant can request this free copy and then pass it on to the landlord.
This isn’t ideal for a few reasons:
- The report could be outdated if the applicant pulled it a few months ago and isn’t yet entitled to another free one.
- It won’t be as comprehensive as a full tenant screening report.
- The tenant could doctor the information with a little graphic design skill.
6. Ask Clarifying Questions
An essential part of this process is to analyze the applicants’ credit history at every step.
For example:
- In step 1, they might mention a really low credit score.
- Step 2 might reveal bankruptcy.
- Step 4 or 5 might show that they’ve had 4 late payments in the past year.
Each step of the application process should see the number of applicants remaining whittled down until there are only a few left. At this point, landlords might need to get clarification on certain aspects of their credit reports. This could happen if one applicant appears extremely qualified but has a missed payment on their report.
In this case, it’s probably worth a quick email to the applicant to get some explanation. If they respond satisfactorily, the landlord can move forward confidently.
It’s not considered best practice to disqualify an applicant for a single infraction unless it’s severe. You’ll miss out on good tenants who have an otherwise terrific application.
What to Look For in a Tenant Credit Report
A credit report gives an overview of your tenant’s financial health. These reports start out with overviews and simple information but then go very in-depth if you want to find underlying reasons behind their score.
1. Overall Credit Score
Most landlords are familiar with credit scores and what a good score is. The best practice for a landlord is to have a minimum score that all tenants must pass before moving on. If you reject anyone under 600 (for example), you can easily whittle down candidates and also be less likely to be sued for discrimination.
Here’s a screenshot of an actual credit report pulled using Avail’s service:
2. Credit Usage
As demonstrated in the previous image, credit usage is important enough to be included in the overall summary.
Credit usage shows the percentage of their available credit that they have used. Having a low number here shows that they’re not prone to spending when they don’t have money. It also shows that if the tenant gets into financial trouble, they’ll likely have more breathing room because they can use that credit. While it can’t be used to pay rent, it can help with their other bills, freeing up their cash for rent.
3. Payment History
Again, Avail chooses to show this at the top of their report. As a landlord, what else is more important? If the applicant has a pristine history of paying their financial obligations, you can be relatively sure that you have a fiscally responsible tenant.
4. Derogatory Marks
These are items like bankruptcies, late payments, collections, and more. Here’s what a summary of that might look like (along with age of accounts and inquiries):
5. Past Addresses and employers
Most credit reports include this information to help landlords verify employment, income, and rental history.
6. Individual Account Histories
Often, landlords can see individual trade lines (such as a credit card or loan), how much the applicant owes, and whether all their payments have been made on time.
How to Legally Reject Applicants For Their Credit
Each landlord has a responsibility to deny applicants without being discriminatory. The Fair Housing Act (FHA) and the FCRA set standards that must be followed.
The FHA lists protected classes that cannot be the basis for rejecting an applicant. Landlords are certainly within their right to reject an applicant based on their credit score, but it’s easy for the landlord to appear discriminatory if they aren’t careful.
- Do not deny applicants based on race – Race (and country of origin) is a protected class. If two applicants have roughly the same credit history, yet one of them is a different race, be sure that doesn’t factor into your decision.
- Have the same standards for all applicants – If you don’t want a certain person to rent your unit, you can’t say they need a 700 credit score unless you’re willing to uphold that same standard for all your applicants.
- Send rejection notices – The FCRA requires that applicants rejected for an item found in a consumer report (such as credit history) must be sent an adverse action notice detailing why they are being rejected. This also helps avoid discrimination as there is now written proof of the rejection reason, which avoids speculation of discrimination on the rejected applicant’s part.
