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How Landlords Can Check A Tenants Credit Report

How Landlords Can Check A Tenants Credit Report
by John Carlucci - May 10, 2022

Introduction

A tenant’s credit check is an essential part of screening potential tenants. This helps you make the right choice with the tenant.

Your choice of tenant can mean the difference between dealing with problems like late payments and a stress-free experience where you are able to earn a handsome passive income.

When it gets down to getting the right tenant for the property, there are several ways to access a rental application. But, the most effective way is to request a tenant credit check as a part of the screening process.

Checking the tenant's credit score gives you an idea about the applicant’s financial situation and whether or not you will experience any rent problems in the future.

You want to be transparent about the application process but clearly make the credit score check a part of the application qualifying process. 

Check this article to understand how landlords can initiate the tenant’s credit report check and ensure the property is rented to the right person.

What Is A Tenant’s Credit Score?

A tenant’s credit score is the information that provides you with an overall understanding of their financial situation. A credit score shows the current address and address history, credit card accounts, account payment history, recent credit and loan application applications, and unpaid debts.

The reports usually go back a week to several years, depending on the applicant’s credit history. The reports will highlight whether they are able to pay up their credit card bills promptly or have accumulated loans in the collection.

In addition, you will be able to see any past history of bankruptcy or foreclosure. This will help you get enough information on the applicant's financial situation.

An individual credit score depends on the following criteria:

  • Outstanding balances.
  • Payment history.
  • Length of credit history.
  • Application for new credit card accounts.
  • Types of credit amounts.

All these factors combine to form a FICO score from 300 to 850. The scale is quite wide. How can you know that your credit score hits the right mark?

According to the expert, this is how the scale is divided.

800-850: Excellent

This is where you would want your credit score to be. This is the absolute best tab where you enjoy the lowest interest rates on loans, credit cards, and lines of credit. Why? Because they have proven themselves to be responsible with their finances.

700-799: Very Good

Even this range of credit scores marks you as an individual responsible financially. People with an in this slab have a history of being responsible for most of their monetary decisions. For example, if an applicant has a credit score on this slab, you can be sure that you are getting your rent on time.

650-699: Good

Perhaps this is the last slab you would want to look for in the credit score check. One-fifth of the people fall under this category and often receive competitive interest rates. Before accepting a tenant with such a credit score, explore the other factors and determine its risk.

600-649: Fair

A credit score in this slab is considered risky. This is because individuals with a credit score like this tend to have faced financial problems in the past. Although the financial problem might not have been major, it would still affect the credit score. 

<600: Poor

Below 600 is something that you must avoid at all costs. Individuals with such low scores are the people that have defaulted multiple times. In addition, if someone has filed for bankruptcy, they will have a poor credit score for seven years. If you accept a tenant with a credit score less than 600, you face the risk of late or missed payments.

Benefits Of Tenant Credit Score Check

While it is important to check a tenant's credit score, are there any benefits? Let’s look in detail at the benefits of checking the tenant's credit score offers.

1. Detects Spending Habits Of The Tenant

There is one way to tell whether someone is good at handling their budget - just look at how many credit cards they own. If they are carrying too many credit cards, they need that many to live their lives.

In fact, even if someone has one credit card, they can be bad with their budget. In that case, just look at their credit utilisation rate. This will tell you just how much they own.

It is crucial to check a tenants credit and ensure that they have low balances on credit. If they are maxing out every month, there is a possibility that you might have problems getting rent from time to time.

2. Credit Profile Shows If Tenants Pays Their Bill On Time

A credit score report defines the credit profile. Here in the report, you can see whether the applicant pays all their bills on time.

It is important that you pay close attention to getting the rent on time. If your tenants are late on rent, you might not be able to meet your financial responsibilities.

The tenant’s credit reports help you know whether or not the tenant is responsible for all the bills. 

3. To Ensure Tenant Have Submitted Correct Information

Once you have the credit score, you need to use the public record information to confirm the details. This is to ensure your tenant has submitted accurate information.

While some information might be wrong, these can be genuine mistakes. However, having too many dispensaries could point to a candidate who has a habit of lying.

Where To Get Tenant’s Credit Report?

Being a landlord means you can enjoy primary income at the cost of passive income generation efforts. Though this might be true, it is also true that you need the perfect tenant to pay all their bills on time.

The best way to ensure that you get your rent every month without delay is to seek help from professionals and take their help with the tenant screening process.

However, if you put in a little bit of effort, you can find relevant information from the following platforms.

  • FrontLobby.
  • Experian.
  • TransUnion.

These platforms are among the best and offer all the information a landlord will need. In addition, you can order the reports online and receive them immediately with just a single click.

If you don't want to burden yourself with additional responsibility, you can ask the applicants to attach a credit score report along with their application.

What Other Information Landlords Look For?

Beyond the credit rating, there are several other factors that you can look for to narrow down the best tenant. In fact, you can use these factors if the credit score is not satisfactory.

1. Credit Usage

Every credit has a limit. But, while there is a limit, it doesn’t mean that you have to max it every month. Yes, you can do so. But, what it does is that it doesn’t give you enough room to pay in case of emergencies.

The credit utilisation rate plays an important factor. If this rate is low, it shows that the applicant is not overspending. The best way to maintain a healthy credit score is to use only 30% of the credit limit.

2. Previous Rental Payment History

If the tenant is changing location, there is a possibility that they have been a tenant there as well. Checking the credit score report will help you know their previous rental payment history.

The report will highlight the issue where they have been reported for late payments. This will give you an idea of whether the tenant you are about to accept has a late payment habit.

Alternatively, you may also find positive previous rental history.

3. Income Verification

Before you accept any tenant, it's important to see whether or not the applicant has sufficient income to afford the rent. There are several ways to verify their income. One of the ways is checking their credit score reports.

Credit score reports give you a clear idea about their current financial standing and how well they manage their finances. And if the tenants are self-employed, you want to look at their profit-loss statements.

4. Overall Debt

Debt is a problem that has become common for almost every individual, especially after the pandemic. Hence, it is important to know what debt your tenant has to see whether or not they will be able to pay rent and other financial obligations.

Just looking at the total debt might not give you a better understanding of their situation, considering what kind of debt they have. This will tell you if an applicant is more likely to be beneficially irresponsible or accrue a reasonable amount of debt.

Legal Issues With Tenant’s Credit Reports

Most landlords are afraid to ask for a credit report from their tenants, thinking it is illegal. But, for your information, it is not.

Asking for a tenant's credit score or making it a necessary document for the application is completely legal, as long as you don’t illegally discriminate.

If you are making rules for every tenant to follow, it's legal and you asking for their credit score is legal.

Author

  • John has worked alongside Real Estate Giants across USA and Canada for decades. Since he started Prudentialcal, he has been actively rendering service as business adviser to many companies in the real estate industry. He formed Prudentialcal in hopes of providing the most reliable stories and information there is in the vast industry of real estate

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