Running a Credit Check

After a tenant completes a rental application, it’s time to run a credit check. A credit check will be very helpful in determining whether or not the prospect pays bills on time and is responsible.

What Does a Credit Report Show?

  • Identification information: A credit check will confirm that the prospective tenant is who they say they are. The report will include the person’s name, current and past addresses, date of birth, known employers, marital status, and Social Security number.
  • Credit history: There’ll be a list of bank accounts, credit card accounts and any loans. It will also show how long the accounts have been open, the payment pattern over the last two years, the loan amount(s), credit card limit, and any co-signers.
  • Public records: Any evictions, bankruptcies, tax liens, or civil judgements against the individual will also be reported.
  • Previous credit checks: The report will show the names of those who have requested a credit report from the individual in the past.

Some credit checkers will also report the person’s FICO score, which is the credit score that is most popularly used.

What Do You Need to Run a Credit Check?

There is some basic information you need to know about the prospective tenant before you can run the credit check. A rental application should have provided you with everything you need, including authorization to run a credit check. This an extremely important part of the tenant screening process.

Here’s a list of the details you need:

  • Full name
  • Addresses for past two years
  • Date of birth
  • Current employer
  • Current landlord
  • Social Security number

Again, remember to receive consent from the tenant so you may proceed with obtaining the credit report.

Running It

Once you have all of the requirements in place, you can go ahead and request the credit report. You can decide whether or not you want to charge the prospect for the credit check — you are allowed to have them cover the expense. There are lots of agencies that can conduct the check for you; Experian, E-Renter, and Credit Karma are some popular ones. It is best to research the company you are thinking of using to ensure it is credible.

You’ll use the tenant’s information to generate the report through your chosen agency. Some agencies may ask you for a copy of the tenant’s signed consent.

What to Look For

There are some red flags that could be waved in the credit report, such as:

  • Chronic late payments
  • Unpaid accounts
  • Debt
  • Bankruptcies
  • Evictions
  • Judgements

Bad Credit

The Fair Credit Reporting Act outlines specific actions you must take if you refuse to rent to someone with bad credit. You must mail an Adverse Action letter to the prospect explaining that you have denied them tenancy because of their credit. Make sure to include the exact reasons for your rejection. In addition, you must provide them with the name, address and phone number of the agency you used to run the credit report; inform them of their right to request a free copy of their credit report from the agency within 60 days.

If you choose to rent to an individual with bad credit, you are legally allowed to charge an additional security deposit or ask for a co-signer. Note that you still must send the Adverse Action letter giving reasons for the additional requirements, if this is the case.

Tips

  • Run a credit check for every prospect, not just ones who seem “iffy.”
  • Screen all tenants exactly the same way to avoid being accused of discrimination.
  • Keep copies of all documents so that you may refer to them later.
  • Choose a reputable credit agency.
  • Remember that good credit doesn’t mean a good tenant.

Jaleesa Bustamante