How to Run a Credit Check for Tenants

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In 2021, over 5.7 million US households fell behind on rent payments. Of course, many things can keep tenants from paying rent, but as a landlord, you want to minimize that risk.

Before you rent out your property, consider running a credit check for tenants. Then, you can make sure you can trust the applicant to pay their bills so that you can pay your bills.

Keep reading to learn how to run a tenant screening.

Why Run a Credit Check on Potential Tenants

Running a credit check for tenants offers a few benefits to landlords. First, you can make sure that a potential applicant makes enough money to cover the rent payments.

A credit report will also show you any debt the applicant has. If someone has debt, you can see if they’ve made payments on time or if they’ve ever missed a payment.

While a good or bad credit report won’t guarantee anything, it’s a good indicator of the applicant’s financial history. If you find someone has missed a lot of payments, there’s a chance they’ll pay rent late.

You can use the report to decide who to rent to as well as if you’ll want a cosigner. Then, you’ll be able to protect yourself and your finances as a landlord.

How to Run a Credit Check

A credit check is an excellent part of your overall tenant background search. If you want to get the best information from the process, you need to know how to run a credit check.

That way, you’ll be able to work with people you trust to pay the rent and keep the place in good condition. Here are some steps to follow to run your next tenant credit check.

Gather Necessary Information

First, you need to gather some details before you start running a credit check. You will need the rental application for the potential tenant, and that document includes details like their name and social security number.

Applications are also important for logging a tenant’s date of birth, recent addresses, and current landlord. You can use this data when running a credit check to ensure you get the report for the correct person.

When collecting someone’s application, ask for their permission to run a credit check. Get the consent in writing in case the applicant tries to withdraw it later.

In many cases, you also have to prove that you’re a landlord to run a credit check for tenants. This might include a proof of residence, such as a mortgage as well as your ID or driver’s license, and a mortgage for your rental property.

Choose a Credit Check Service

One of the easiest ways to run a credit check is to go through one of the three main credit bureaus. Equifax, Experian, and TransUnion all let you run a tenant screening to learn more about rental applicants.

You should be able to get a detailed report from any of those organizations, so you don’t have to get multiple reports. However, you can always request reports from each.

If there are any discrepancies, you can address them with the tenant. When there aren’t any issues, you’ll be confident that the applicant is a good person to rent to.

Think About the Details

Depending on the service you use, you might only be able to request a simple credit report. However, other credit check services can provide you with a full tenant background check, including criminal records.

You may not need more than the basic credit report to decide to accept someone as a tenant. But if you have concerns about someone and their criminal history, it’s okay to run a more thorough check.

As you research credit check services, consider if there are any other things you want to cover. Then, you can select the best service for your needs. You can always change services later if you want to track other details.

Pay the Credit Check Fee

Another essential step in running a credit check for tenants is to pay the fee that most credit bureaus charge. The fee usually ranges between $25 and $75, depending on the service.

If you don’t want to cover that, you can charge applicants a higher application fee. Another option is to charge a credit check fee to people on your shortlist of applicants.

Either way, you’ll be able to learn about potential renters, and you can keep your overhead costs low. Consider if you’re willing to eat the cost of a credit check or if you want to charge applicants accordingly.

Consider a Subscription

If you have a lot of properties or do a lot of credit checks for some other reason, consider a subscription service. Some credit check companies let you pay one fee for unlimited checks.

A subscription can be an excellent option if you have to run checks every money. On the other hand, if you only have one or two properties, a subscription may cost more than what you’d spend on credit checks.

Run the numbers based on the credit bureau fees and other costs. Then, you can see which option will be most cost-effective for your situation.

Review the Credit Report

It can take as much as 10 days to receive the results of a credit check for tenants. Once you get the report, you can take a look at it to see if there are any concerning details.

A report will show you the applicant’s name and contact information as well as their spouse’s name, if applicable. Be sure to look at any fraud alerts as well as the financial summary and credit score.

Consider the account summary, which shows all loan and bank accounts an applicant has. You can also review public records, such as known employers, evictions, and bankruptcies.

The report will also show you any credit inquiries and when they took place. You’ll be able to see if there are any loans in collections, which can show you if the tenant has fallen behind on payments.

Verify Credit Details

Before you make any assumptions, speak to the applicant about certain details on their credit report. It helps to verify information such as income and rental history.

Even the best rent credit reporting might be old or have inaccurate information. In some cases, there may be errors or fraudulent transactions that the applicant doesn’t know about.

It’s hard to rely only on the credit report to decide who to accept as a tenant. You may want to review certain things with their current landlord or employer.

Speak with any references the tenant gave on their application as well. Then, you can learn as much as possible about how good a renter the person would be.

Talk to the Applicant

Giving an applicant the chance to explain can help you get a fuller picture of the situation. Of course, you may want to be skeptical of what the tenant says, especially if they claim their entire credit report is wrong.

However, you should hear their side of the story, especially if there are any fraudulent transactions. You might also learn that some of the debt is due to a spouse or someone stealing the applicant’s identity.

A low credit score may have a lot to do with someone not having a long credit history. Many things can affect the results of a tenant background check, so talk to the applicant to address your concerns.

Decide to Accept or Reject

After you go through the credit check, you’ll need to determine if you will accept or reject someone’s rental application. If someone has a good application but a few concerning factors, you can still rent to them.

You might want to have them find a cosigner or a guarantor to help ensure you will receive rent payments. Then, you’ll be able to protect yourself when renting to someone without a perfect credit history.

If you choose to reject someone, make sure it’s for a good reason. Avoid rejecting people for reasons such as their race or other things that may lead to a discrimination case.

Keep Things in Writing

During and after the rental application and credit check process, get and keep everything in writing. You should do this with everything from the tenant’s consent to a credit check to your communication with them.

Keep a copy of all of these details as well as the application and credit check in a safe place. In case the applicant decides to sue you for discrimination or something else happens, you’ll have the information you need.

You can use those documents to back up your case in a suit or another situation. If you haven’t already, set up a file folder or cabinet to store essential documents and keep them there for as long as you feel you need to.

Will You Run a Credit Check for Tenants?

Running a credit check for tenants is a crucial step in the application process. Without proper tenant screening, you risk renting to someone who will miss rent payments or who will trash your property.

Be sure to keep some steps in mind the next time you get a rental application. Then, you’ll be able to rent to someone you can trust to protect the property and who will pay rent on time.

Do you want to learn more? Head to our business section for tips to help grow your rental business.

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