How to Use Credit to Screen Tenants

by Chris on January 28, 2019

Using information from tenant credit checks when screening tenants can be confusing.

For instance, does a landlord need a tenant credit check if they have verified the rental applicant’s income?

What if the person seems honest and has good references?

Is it unfair to use credit when screening tenants?

A tenant credit check is used two ways:

Verifying that the applicant is someone who respects financial commitments; and

Flagging tenant fraud.

Verifying the applicant’s current income does not provide any insight into whether this person pays bills on time. Wealthy tenants also skip rent payments or overspend.

An applicant who lists a high income but has poor credit may be a scammer. The income could be overstated, or the person may not be who they claim to be. Either way, income verification alone will not paint the full picture, or expose a fraudulent applicant.

Fraudulent tenants fear tenant credit checks. Income and references can be falsified. Discrepancies in the rental application will only become apparent when compared to a tenant credit report, which cannot be falsified. Therefore, it’s essential to run a tenant credit check as the last step in the tenant screening process. Anyone can be a fraudster — that “nice” tenant who just moved here with bundles of cash, the “sad” applicant with a sick child, the “cute” couple with “great” jobs.

Tenants complain that “one little mistake” will lead to bad credit, and ultimately homelessness, but that simply is not the case.

Credit bureaus use a variety of factors when evaluating tenant credit. These reports take into account a pattern of financial decisions made over time. Judgements that were entered after a tenant defaulted on payments, habitually late payments, and overuse of credit lines all are indications that the tenant may default on rent or pay late. A landlord cannot risk this income loss.

It is appropriate to wait to run the tenant credit report until after everything else checks out. Review the rental application and confirm qualifications and then verify that information to avoid any obvious scams. Speak with references including current and previous landlords to check rental history and catch fake references. Then, run the tenant credit check to uncover any information the applicant may have tried to hide and to catch fraud such as identify theft.

A person’s credit should not be the only factor in choosing tenants. It does not make sense to look for an ideal score or automatically exclude tenants who fall below a specific line. Red flags on a tenant’s credit check are a reason to dig deeper to determine if the applicant is, in fact, qualified. Credit is important to landlords because it serves as incentive for tenants to pay rent. Those with poor credit have little to lose by paying late. Tenants with good credit, on the other hand, will want to keep it that way by paying on time each month.

Nobody’s credit is perfect, but if the tenant credit report doesn’t add up when compared to the rental application, this last step may be the one thing that exposes a tenant from hell — while there’s still time to turn back.

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, 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.

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