What Do Smart Landlords Look for on a Tenant Credit Report?

Last Updated: October 30, 2023 by Cameron Smith

The applicant’s credit score is perhaps the best catchall metric for measuring a tenant’s ability to pay rent for the foreseeable future and a great indicator of their likelihood of being evicted. With 84% of landlords stating their top concern is a tenant experiencing payment problems, a credit report can help ease your mind.

What is Included in a Credit Score?

First of all, let’s clarify information about credit score and credit history.

A credit history is a detailed list of a consumer’s financial activity, especially relating to debts. A credit score is their credit history all summed up into a single number, ranging from 300 to 850. Most commonly, a credit score is defined as the consumer’s ability to pay off debt.

For example, a credit score above 700 usually indicates a good track record of paying off debts. Someone with a score of 500 means they either have a short credit history or have had significant issues with paying off debt.

A credit history generally contains:

• Open credit accounts (credit cards, mortgages, and loans)
• Date opened
• Credit limit or loan amount
• Account balance
• Highest account balance
• Monthly payments
• Recent payments
• Closed accounts
• Payment history – All on-time and missed payments
• Public records – Bankruptcies, liens, foreclosures, court judgments, divorces, and more
• Credit inquiries – List of any person or company that has requested your credit report, whether voluntary or involuntary.

How Long Do Items Remain on a Credit Score

As a landlord, just because you don’t see a bankruptcy or missed payments on a credit report doesn’t mean the applicant never had any. It could just mean enough time has passed that those have fallen off the report.

While it may have fallen off a consumer report, perhaps a prior landlord will mention it. However, the Fair Credit and Reporting Act (FCRA) limits how long negative information can be used in consumer reports. So if you find information in this manner, be careful not to use it as the basis for denying an application.

Here’s how long different items remain on a credit report:

• Bankruptcy – Depending on the type, bankruptcies remain for 7 to 10 years.
• Late Payments – Even if they are eventually paid, they remain on a credit report for 7 years.
• Collections or charged-off accounts – These are essentially missed payments. They stay on your report for 7 years.
• Hard inquiries – These happen when a company requests a copy of your credit report to provide you with a service, such as applying for a loan or credit card. They stay on your credit report for 2 years.

What Is Not Included on a Credit Report?

While a credit report does offer some good information, other pertinent information is not included such as:

• Salary
• Occupation
• Employment history
• Child or spousal support
• Criminal history
• Checking/savings account balances

It is essential to complete additional tenant screening to determine if an applicant is a good fit.

Why Do Landlords Need To Run a Credit Check on Prospective Tenants?

With the national average FICO credit score reaching 716, many landlords may feel as if a credit check is unnecessary.

However, comparing this statistic with the fact that there are over 3.6 million eviction cases per year and the cost of eviction can reach over $10,000, landlords may discover how important a credit check really is.

What Minimum Credit Score Should Landlords Require?

This isn’t a simple question to answer because of the many factors involved. Let’s start with the different classifications of credit scores, according to Equifax:

• 800-850 = Excellent
• 740-799 = Very good
• 670-739 = Good
• 580-669 = Fair
• 300-579 = Poor

Many landlords will set a score that is an absolute baseline minimum. No matter the reason why or how the applicant can explain their score, the landlord will not consider their application. The exception would be if they volunteer to bring a co-signer, which would mean having someone else with a higher credit score also be financially responsible for rent.

While most landlords would like to see a considerably higher credit score, a good minimum starting point could be anything above the “poor” range—580 or higher.

Having a set minimum standard helps landlords weed out many applications right from the start without extra time or thought. This is essential if a property has dozens of applicants.

Should Landlords Accept a Rental Applicant With a Low Credit Score?

The answer is that it depends. As mentioned in the previous section, having a minimum acceptable level of credit can help sort out the most unqualified applicants. But what about applicants in the “fair” range? Are they worth considering?

Here are several factors to consider when looking at applicants with a low credit score:

• Strength of Application
• Length of Credit History
• Elapsed Time Since Negative Marks
• Actions That Led to a Low Credit Score
• Number of Other Applicants
• Any Extenuating Circumstances

Strength of Application

The best reason to consider an applicant with a low credit score would be if the rest of their application is pristine.

If a low credit score is accompanied by:

• Good rent-to-income ratio
• Strong references
• Good communication skills
• Willingness to follow all rules
• No criminal background
• No eviction history

Then that would be someone to consider. On the other hand, a poor credit score accompanied by a lackluster application would almost certainly be someone to dismiss out of hand.

Length of Credit History

Someone who’s brand new to having a credit history may not have a spectacular score. They don’t start at the bottom (300), but they won’t start with an 850 credit score, either.

If they are someone who doesn’t have negative marks yet, has a good income, and the references give positive reviews, then this is an applicant that should be considered.

Elapsed Time Since Negative Marks

Some marks on a credit history can be detrimental for a long time. It’s possible that a tenant with a spotless history for a few years can still have a poor credit score, especially if before that they had missed payments, bankruptcies, or other negative items.

However, if 3-4 years have passed and the applicant has had no issues, then a landlord may want to consider renting to that person. Another mitigating factor could be if the applicant was very young (like 18-20 years old) when the negative marks happened.

Actions That Led to a Low Credit Score

There are plenty of reasons a credit score can be low, and some are less relevant to a rental property.

While no landlord wants to see a poor credit score, it’s a good idea to dig deeper into their history. For example, a history of missed rental payments or evictions should be considered differently than someone who bought a car that was too expensive and couldn’t pay it off.

Some landlords won’t see much of a difference. A missed payment is a missed payment. Every landlord has the right to decline an application for a poor credit score, but digging deeper into a credit history can help decide between the two remaining applicants.

Number of Other Applicants

While every landlord hopes for dozens of highly qualified applicants, that isn’t always going to be the case. If only 2-3 applicants make it through the initial screening process, then the landlord can’t be very picky.

If every applicant has significant issues, you may decide that the applicant with a low credit score is your best option.

You could also decide to reopen for more applications, perhaps with a lower price or different marketing. However, keeping a property vacant for longer costs homeowners over $2k per month, on average.

Keep in mind, that if you settle for a lower-quality tenant, you’re more likely to have to deal with an eviction or unplanned vacancy down the road.

Any Extenuating Circumstances

Any good landlord will dig deeper than just looking at a score or credit history—provided the applicant meets the minimum score set by the landlord.

For example, the applicant may have lost their job a few years back and couldn’t make payments for a little bit. Maybe now they have a better job than ever and make significantly more money than is required to rent property.

Or, perhaps they had catastrophic medical bills that they couldn’t pay and had to declare bankruptcy. Now it’s been a few years and they are in much better financial shape.

While it’s within a landlord’s right to disqualify those applicants, they might be missing out on a great applicant by not seeking to understand the situation fully.

How Should Landlords Handle Tenants With No Credit History?

Start by looking at the strength of the rest of their application, and most importantly, their income.

You can also look at the silver lining of having no credit history: they’ve never given you a reason that they won’t be responsible for paying rent each month. This determination can be made on a gut feeling by the landlord.

While having hard facts to work with is a better way to run a business, the person may give off a confident, responsible vibe. It’s not easy to explain, but you know it when you see it.

Of course, you should still take steps to protect yourself from applicants with no credit history.

How to Mitigate Risk of Accepting Applicants With Low (or No) Credit Scores

If you decide to take on someone with poor credit, here are a few of the actions that you can take to protect yourself against a future eviction or unplanned vacancy:

• Charge higher rent – As long as you’re not raising rent (or doing anything else in this list) because someone belongs to a protected class, then you’re legally allowed to do this. Raising the rent allows you to put away a little more money each month in the event the tenant costs you money.
• Require higher security deposit – Security deposits are commonly a month’s rent or first and last month’s rent. You can get away with charging an extra month or two to cover yourself but realize this may price some people out of your rental.
• Require a co-signer – This means that someone else will sign the lease with the applicant, and that person is financially responsible for the rent if the applicant does not meet their responsibilities. This is fairly common for parents to do with children who are renting for the first time.

How Do Landlords Check Credit?

While a credit report should be only part of a landlord’s tenant screening process, getting a credit report is fairly simple. You can:

• Ask the applicant for a copy of their credit report
• Pull a credit report using a credit service (like Equifax, Experian, or TransUnion)

How Much Does It Cost to Check a Rental Applicant’s Credit?

Getting an applicant’s credit reports typically costs around $20.

Several tenant screening services offer the ability to purchase a credit report, such as:

• AAOA – $14.99 add-on to their Red service
• AAOA Basic Credit Service – $19.95 a la carte
• Experian – $14.95 a la carte
• LeaseRunner – $22 a la carte

Who Pays for a Tenant Credit Report?

Most landlords charge potential tenants an application fee. In the US, the average application fee is $30 (per applicant).

Can Tenants Provide Their Own Credit Report?

There are no federal requirements that say you must accept an applicant’s copy of a credit report. However, some states such as New York allow tenants to submit a copy of their own credit report if it was obtained during the last 30 days. Check your local and state laws to determine whether you are required to accept a tenant’s copy.

How Long Does It Take To Get an Applicant’s Credit Report?

It can take up to 24 hours to receive a potential tenant’s credit report. Some credit reports include detailed information from previous landlords, waiting for them to respond can take some time.

What Is the Best Way To Turn Down a Tenant With Bad Credit?

Landlords are required to notify a tenant if their application was denied due to bad credit. You must send them an adverse action notice either written or electronically that includes:

• Their credit score
• Notice that the applicant can receive a free copy of their report and dispute the information
• A statement that the consumer reporting agency did not choose to take any adverse action against the applicant and cannot explain the landlords’ decision
• Contact information for the consumer reporting agency that created the report

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