Landlords do need permission to run a credit check, according to the Fair Credit Reporting Act (FCRA). Anyone who pulls credit without permission can be subject to significant fines.
What do Landlords Need to Pull Credit?
In general, landlords will ask for full name, date of birth, and social security number on the application, as well as a box to check giving permission to run their credit. Landlords can then run their credit, most commonly through one of the major credit bureaus (Experian, Equifax, TransUnion).
Also, landlords can use a tenant screening service that allows for the applicant to input their information directly, and then the service provides the credit report to the landlord.
Social security numbers used to be required in order to pull credit reports, but that has changed. Landlords can now use other identifiers such as name, address, and birthday. However, most landlords still ask for an SSN on their rental application as another way to verify the identity of the applicant.
Why Should Landlords Run Credit Checks?
A credit report shows the financial history (going back 7 to 10 years in most cases) of the prospective tenant. The landlord can see prior bankruptcies, late payments, loan defaults, debts owed, and more. Altogether, this gives great insight into the quality of the applicant and whether they can be counted on long term to pay their rent in full and on time.
While a credit check can’t perfectly predict an applicant’s future as a great tenant, many tenants that need to be evicted have some prior history.
For example, 21.7% of tenants that need to be evicted have prior evictions on their record. Evictions are expensive for landlords, usually costing between $3,500 and $10,000.
When it comes time to pick the right applicant, landlords are legally within their right to deny an application for negative marks on their credit report. Comparing credit is also one of the more common ways landlords use to decide between two or more candidates.
Why is Permission Needed to Run a Credit Check?
A consumer’s credit report is considered sensitive information, and could potentially be used to steal an identity or cause other types of harm. Credit reports also contain private information that most consumers don’t want seen by those who they haven’t authorized.
In order to protect this sensitive information, the Fair Credit Reporting Act was developed. A business entity needs to have “permissible purpose” in order to look at a credit report—and landlords do qualify.
The applicant still needs to give permission, and they can check who has accessed their credit report. Any landlord who does this without permission can face legal repercussions.
The FCRA also:
- Gives the applicant the right to know if their application was denied due to negative marks on a consumer report.
- Allows for applicants to receive a copy of their credit report.
- Gives the applicant the right to dispute what’s found on their credit report.
- Allows the applicant to put a freeze on a credit report to prevent anyone else accessing it (for example, if an applicant notices unauthorized access).
- Allows the applicant to seek damages from violators.
What Are the Consequences of Checking Credit Without Permission?
The consequences of a landlord checking credit without permission can be quite severe. It also depends on how negligent the person was who pulled the credit report.
Willful Violation of the FCRA
This is when a landlord knowingly pulls a credit report without permission. They violated the law on purpose. These fall under two categories:
- Basic Damages – The punishments result from either actual, provable damages (no limit on financial restitution) or statutory damages between $100 to $1,000 (no proof required that the violation harmed you).
- Lied to Get Credit Report or Used for Improper Purpose – The punishments result from either actual, provable damages (no limit on financial restitution) or $1,000 flat.
Negligent Violation of the FCRA
A negligent violation is when a landlord doesn’t go out of their way to break the law, but may have caused damages through neglect or indifference. For example, a landlord prints off a credit report, visits a friend’s house, and leaves the credit report on their counter.
- Actual Damages – No set limit or minimum
- Attorney’s fees and costs
How to Get Permission to Run a Credit Check
Generally, permission is given on the rental application form. Consent must be given in written form and also must be signed and dated. Some landlords will include an entirely separate paper for the applicant to sign and date to make it explicitly clear that they will be running a credit check.
Most landlords will be checking more than just the applicant’s credit, so you’ll want to make sure that you’re also getting permission to make inquiries and verify information with:
- Current and former landlords
- Employers
- Credit holders
- Credit references
- Financial institutions
- Neighbors
- Police departments
- Personal references provided on the application
Also include a mention that you may have direct contact with these parties. “This information may be gathered, but is not limited to, through direct contact with…”.
For proper verbiage that constitutes consent, be sure to contact your landlord & tenant attorney.
Another option to obtain a credit report is to ask the applicants to provide their own copy. The three credit bureaus are required to supply a free credit report once per year to consumers. Asking the applicant to provide a copy avoids any permission issues, and helps to avoid some tenant screening costs as well.
Even in the case of a tenant supplying their own credit report, be sure to obtain written consent.
How to Run a Credit Check
There are three main ways that landlords use to pull credit for a potential tenant:
- Have the tenant pull a free report from one of the credit bureaus – This is less recommended as it requires action on the part of the applicant, as well as the potential to receive outdated reports. The credit bureaus only allow pulling a free report once every 12 months.
- Use a tenant screening service and purchase only a credit report service – Some tenant screening services will allow you to pull only credit reports for under $20. However, as most landlords will also want more reports pulled in other areas, this isn’t the generally recommended course of action.
- Use a tenant screening service to pull thorough reporting – This will give landlords detailed data about the applicant’s credit, criminal, and eviction background. For most landlords, this is the way to go.
Some landlords won’t choose option three because it costs more money. However, poor tenants that lead to future evictions and vacancies are much more expensive than tenant screening reports. Furthermore, most states allow for landlords to collect an application fee which covers tenant screening costs.
