Running tenant credit is the final step in the tenant screening process. This information helps landlords:
Uncover tenant fraud including identity theft and false identity;
Confirm the applicant’s qualifications; and,
Gain leverage for on-time rent payments.
A credit report may prove a tenant’s habit of paying their bills on time. Conversely, the credit report may expose a history of late payments, delinquencies, or overextension of credit — all signs that point to a tenant who might default on rent payments.
Getting the most value from a tenant credit check is easy:
How to Make the Most of a Tenant Credit Check
Start with accurate information.
There is one simple rule that applies to running tenant credit checks: the credit report needs to match the applicant.
Credit bureaus go to great lengths to protect individual consumer credit information from accidental disclosure. To view a report, it is necessary to provide personal details about the applicant. This is why a tenant who is using a fictitious name or identity will work so hard to avoid running a tenant background check. Lying about a name is one thing. Creating an entire credit profile to match that fake identity is virtually impossible. So is accessing another person’s credit record.
To receive an accurate report, a landlord should check a photo ID to confirm the applicant’s legal name, address, and birth date. That information is provided again in the rental application signed by the tenant and it needs to match the ID.
Use a reputable tenant screening service.
To access a tenant’s credit report, a landlord must go through an authorized credit reporting agency. The information must come from this independent source, not directly from the tenant, the tenant’s social media, or a tenant profile from a rental advertising platform. The value of a tenant credit check is that the information cannot be manipulated by the tenant and is therefore trustworthy.
Generally, there are two ways to obtain the tenant’s credit report. The tenant can request the report by entering their personal information and then directing the credit reporting agency to allow access to the landlord. If the tenant uses this method, it is not necessary for the tenant to share as much personal information with the landlord.
The landlord may choose to access the information directly if they have been verified through the tenant screening agency to receive credit reports. This full report may offer more insights, such as previous addresses that have not been reported on the rental application, but full reports are cumbersome to read.
How to Interpret a Credit Report
If the tenant was unable to answer the personal data questions and gain access to the credit report, this is a red flag. The same is true if the landlord cannot access the report directly because the applicant has provided the wrong name, birth date or SIN. Mistakes happen, and there may be an innocent explanation, but it also is possible the applicant is trying to avoid the credit check.
Where there is thin credit or no credit record on the applicant, the landlord must determine if this makes sense in light of the tenant’s circumstances.
For instance, someone who recently arrived from another country or is a younger renter may have little or no credit. But where the applicant claims to have worked for the same employer for years and has a credit card or car loan, a finding of no record may signal identity theft or a false identity.
The credit report may be graded based on relative risk, or it may include a credit score. The grade or score will take into account the applicant’s overall history of paying on time and in managing credit, and either report will expose tenants who are high-risk.
Generally, landlords want to work with tenants with good credit because those tenants typically want to maintain their good standing.
Some landlords set a base threshold credit score when qualifying rental applicants. There is a split of opinion whether a credit score alone is a good indication of the tenant’s overall qualifications. A rental applicant who experienced financial hardship but has successfully rehabilitated may be a perfectly acceptable tenant. A person with a high credit score may have skipped out on the last landlord. Credit is a valuable tool in qualifying tenants, but it is not the only factor. It is best to verify income and speak to previous landlord references first to confirm rental history before running a tenant credit check.
This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks (U.S. and Canada), as well as Criminal Background Checks (U.S. and Canada) and Eviction Reports (U.S. only).
Click Here to Receive Landlord Credit Reports.
Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.