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“The Tenant Credit Check And Why It’s Important”

How can you tell if potential tenant is capable of paying his rent on time?

As the property manager or landlord, your duty is to find the best people who have the ability to be a good tenant. Good tenants are people who will treat your properties and their neighbors with respect.

That is why property managers have a process called tenant screening. Almost every property manager use this process in evaluating forthcoming tenants. A tenant screening report also includes the tenant’s credit report.

Do you know how to do a tenant credit check? If not, then this article will tell you the details you need to know in evaluating the forthcoming tenant’s tenant credit report. If you are already experienced with a tenant credit check then there may be a tip or two you may be able to use in your own tenant credit check process.

Important Steps Before Conducting A Tenant Credit Check

As part of the rental application process you can ask prospective renters for and get authorization forms signed to do a tenant credit check.

Along with the tenant’s rental history, and reviewing everything provided on the rental application, learning the activities on possible renters credit reports is also important.

Before approving their rental application, consider conducting a credit check first.

But make sure you have all the proper and legal authorizations signed by the renter to do a tenant credit check.

As the property manager, you must know your limitations before conducting a credit check.

Every possible tenant should submit a rental application first and they must be at least 18 years old. The tenant should be aware of the tenant screening process that will take place by your office. During the rental screening process, it is important to inform the applicant that you are going to review their credit activities and get signed authorizations to do this.

Some states give a landlord the rights to charge a possible tenant for the cost of ordering a tenant a screening report.

Reasons Why a Credit Report Is Important

A credit report includes vital information about the forthcoming tenant. The three most recognized credit checking services are Experian, Equifax, and TransUnion.

By the time you already had the tenant credit check report, it’s essential to pay close attention to these possible red flags:

  • Late payments of rent, bills or car loans.
  • Eviction records
  • Criminal records
  • Bankruptcies, and any possible settlements or additional information provided on the credit report

As the landlord, you could also request for the forthcoming tenant’s credit scores or FICO scores. Credit agencies such as Experian, Transunion, and Equifax may present different scores but, their reports will share the same details about the tenant’s credit history.

Here are the elements that makes up a tenant credit check and credit score, according to the three major credit check companies.

Payment History

Payment history takes 35% of the tenant’s credit score and late payments definitely have negative effects. Other aspects that could affect are debt settlements, bankruptcies, foreclosures, wage attachments and tax liens.

Amounts Owed

30% of the credit score comes from the amount of the person’s debt. A better score could be achieved by having less amount of debt.

Length of Credit History

15% of the credit score will come from the length of credit history. A long credit history is better than short credit history as long as it does not contain late payments and other negative items.

New Credit and Type of Credit

The remaining 20% of the credit score comes from the new credit and the type of credit. Usually, most people are opening new bank accounts because they are planning to start a new set of debts.

Factors That Do Not Affect The Credit Score

The items on the list below don’t affect the credit score of a potential tenant:

  • Marital status
  • Age (though FICO says some other types of scores may consider this)
  • Race, color, religion, national origin
  • Receipt of public assistance
  • Salary
  • Occupation, employment history, and employer (though lenders and other scores may consider this)
  • Location
  • Child/family support obligations
  • Any information not found in your credit report
  • Participation in a credit counseling program

Credit Agencies

You could conduct your own tenant screening procedures but most landlords or property managers are heavily relying on tenant screening companies. Usually, their service cost $30 per person, or more. Here’s a list of companies that offer tenant screening services:

  • Experian – One of the biggest business information agencies, Experian offers landlords to do a credit report on their tenants.
  • Transunion – For at least $30, they will check your tenant’s credit, criminal and eviction report.
  • Equifax – In order to use Equifax, independent landlords have to go through the National Association of Independent Landlords. Equifax will charge you $15.95 for a comprehensive credit report and $29.95 for a full criminal background check.

These three credit bureaus built a reputation for offering affordable, smooth and reliable services. Creditreport.com could also give you a satisfying job in presenting a complete and detailed report about your upcoming tenant’s credit history.

I personally prefer to use Top1Score to score my tenants. Their services are less expensive (starting at $5/applicant) and you can readily compare tenants to each other and pick the best one.

Final Words About The Tenant Credit Check

Having a tenant credit check process is your first line of defense to keep a smooth running rental business. A tenant credit check is a way you can predict the tenant’s behavior by looking into their past. If they are not paying their bills or continuously not paying it on time, there is a high probability that their behavior will continue.

Be wise in choosing your tenants. The future of your rental property business lies within your decisions.

I hope this article gave you an idea on how to do a successful tenant credit check. If you have questions or comments, leave them in the comment box below.

 

Suggested Articles:
1. What Is A Credit Check?
2. Essential Tips About Tenant Screening For Property Managers
3. Key Reminders For An Effective Tenant Background Check

The Tenant Credit Check And Why It’s Important - National Rental Property Management Guides - Top Property Management Resources

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ARTICLE: The Tenant Credit Check And Why It’s Important