To run a tenant credit check, you must collect the right information, get consent, and then (most likely) pay for a tenant screening service.
Why Should Landlords Run Tenant Credit Checks?
The best way to verify that an applicant handles their financial obligations is to look at their credit report. Someone with poor credit is more likely to be evicted in the future, resulting in average costs of $3,500 to $10,000—not to mention the costs of an unexpected vacancy with no one to pay the rent.
When screening an applicant, a landlord can choose to get a credit score or to see the entire credit report. The credit score is essentially a summation of the credit report. It takes in all the factors found in the applicant’s history and gives out a single number that rates the likelihood they’ll handle their financial obligations responsibly.
If their credit history demonstrates poor handling of finances, then they’re likely to continue having problems in the future. This means that a landlord would certainly rather have someone with a higher credit score (often 620+) for their rental property.
What’s Included in a Credit Check for a Rental Applicant?
A credit report contains:
- Types of credit accounts opened (mortgage, student loan, vehicle loan, etc.)
- Dates of accounts opened
- Credit limit or loan amount for each account
- Account balances and payment history
- Soft and hard inquiries
- 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 is essential for a landlord to collect to determine if they are looking at an applicant 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 puts on the application.
However, asking a free-form question like “What will we find when we pull your credit report” serves a number of purposes:
- Gives you a starting point. To preserve your time (and sanity), you’ll want to reject any applicants that fall below a predetermined baseline. For example, perhaps you don’t accept 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, then they either lied (and you should reject them), or there’s something that 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 else you could become the target of a discrimination lawsuit.
2. Get Consent
The Federal Credit Reporting Act (FCRA) requires that landlords must receive a tenant’s consent to run a credit check. Written consent can be given on the rental application form itself, via a separate consent form, or through the procedures of 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, references, or employers about their financial history (which you should), be sure that’s mentioned on the release.
As always, have an attorney look over your consent form to make sure you’re covered.
Landlord ID Verification
In addition to getting the tenant’s consent, most tenants screening services require verification that you are indeed a landlord of the property. 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.
- Identification, such as a driver’s license.
- Proof of current residence. Some services will automatically match up your name to the tax records. If they don’t match, you’ll be asked to provide additional information.
3. Gather All Necessary Information
Some landlords prefer to use a tenant screening service that serves as both the general rental application and the application for 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 put it into a third-party tenant screening service. If you’re keeping the processes separate, keep in mind that asking for an SSN up front might turn away some tenants.
4. Use a Professional Tenant Screening Service
While it’s not required, 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 a la carte from some tenant screening companies, or from the major credit bureaus, such as Equifax, Experian, and TransUnion.
Of course, pulling comprehensive screening reports will cost more money. In most states (Massachusetts being an exception), landlords can charge an application fee to offset that cost—which means there’s no good reason not to do it.
Some landlords may want to pocket the application fee, 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
- AAOA – $19.95
- CoreLogic’s MyRental – $14.99
Comprehensive services that offer background, credit, and renter histories generally cost around $30 – $55, such as:
- TurboTenant – $55
- SmartMove – $39.99
- Zillow – $35
5. Ask For a Copy of Their Credit Report (Optional)
This is the free option 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.
Once per year, everyone is entitled to get a free copy of their credit report from each of the three main credit bureaus. The applicant can request this free copy and then pass it onto the landlord.
This isn’t ideal for a few reasons:
- Report could be out of date 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.
- 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:
- On step 1 they might mention a really low credit score.
- Step 2 might reveal a 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 a whittling down of the number of applicants remaining until there are only a few left. At this point, it might become necessary for landlords to get clarification on certain aspects of their credit report. 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 give a satisfactory response, then 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 fitness. They usually provide simple information near the top, 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 a credit score and generally what a good score is. Best practice for a landlord is to have a minimum score that all tenants must pass before moving on. If you reject anyone that’s 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 some sort of financial trouble, they’ll likely have some 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 will be able to see individual trade lines (such as a credit card or loan), how much the applicant owes, and if 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 both set forth standards that must be followed.
The FHA lays out a list of 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 to appear discriminatory if the landlord isn’t careful.
- Do not deny applicants based on race – Race (and country of origin) is a protected class. If there are two applicants who have roughly the same credit history, yet one of them is a different race, be sure that doesn’t factor into the decision to reject one of them.
- Have the same standards for all applicants – If there’s someone you don’t want in the property, 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 as to the actual rejection reason, which avoids speculation of discrimination on the rejected applicant’s part.
