What does a credit check tell you?
The information in a credit check will vary based on the agency you use and how in depth of a report you pay for, but can include:
Identifying Information: Confirmation of name, current and past addresses, date of birth, known employers, name of spouse, and Social Security number.Credit History: Lists bank accounts, credit card accounts and any loans (mortgage, student, etc.) It also lists how long the account has been open, the payment pattern over the last two years, the loan amount or credit card limit, and if there are any co-signers.Public Records: Will list any evictions reported, bankruptcies, tax liens or (civil) judgments against the prospective tenant.Inquiries: Will show the names of those who have requested a credit report on them for the last year.
Some reports will also include the prospective tenant’s FICO score.
The Tenant’s Full Legal Name.Addresses for at least the Last Two Years.Social Security Number.Date of Birth.Current Employer.Current Landlord.
To run a credit check on a tenant, you must follow the guidelines set forth by the Fair Credit Reporting Act and must first get a potential tenant’s written permission to do so. The tenant must sign and date a document that states they agree to the credit check. Many landlords include this clause at the bottom of the Application Form. If your Application Form does not explicitly grant you permission to run a credit check on a tenant, you need to get a separate document signed by the tenant, agreeing to the credit check. An example: *It is best to consult legal counsel to determine the appropriate wording.
A document verifying your current address (telephone bill or similar).Proof of identification (driver’s license or passport).Proof that you own the rental property (deed, insurance document, mortgage statement, proof of title, utility bills, purchase agreement).
It can take from 2 to 10 days to get approved, but once approved, it will be a much quicker turnaround time to run credit checks on prospective tenants. Checks can sometimes be done in a matter of seconds.
Decide If You Will Charge a Fee to Run a Credit Check
Some landlords find that charging an application fee, such as $15, to run a credit check saves them money in the long run because prospective tenants with poor credit will usually not consent to pay a fee. Other landlords do not charge a fee because they are afraid that a fee will deter even good tenants from applying to rent their property. Another option is to charge the fee, but if the tenant rents the apartment, you will deduct the fee from the first month’s rent or will add it to their security deposit. A final option is to only perform credit checks on applicants that first leave a deposit for the apartment and have completely filled out your application so that you know they are truly interested in the apartment.
Verify Items Before Running a Credit Check
To save yourself time and money, there are certain things you can verify on your own.
Prospective Tenant’s Name: Ask to see an ID so you can verify that the name and the face are one in the same. Make a copy of the ID to keep with the application.Employment History: You can call the tenant’s current employer to verify their salary and employment status.Prospective Tenant’s Current Address and Landlord: Find out if they do live there, and if so, what type of tenant they are.
If the tenant has lied about any of these things, there is really no sense in proceeding with a credit check because they are most likely not someone you will want to rent to.
Run the Credit Check
Use the tenant’s Social Security number and other provided information to run a credit check with the agency of your choosing. Some agencies will also want you to fax or email the tenant’s signed form consenting to the credit check.
How Long Will It Take?
Certain agencies can provide you with the credit check in a matter of seconds, while others will take a few days to verify the information.
Chronic Late PaymentsUnpaid AccountsBankruptciesEviction History (If Provided)Judgments AgainstLarge Amount of Debt- Even if the prospective tenant pays their bills on time, it is important to look at how much debt they have. If a large majority of their income each month is already committed, they may have difficulty paying their rent on time.
If the Credit Check Shows Good Credit
Great! The potential tenant has good credit and seems to pay their bills on time. That being said, credit reports are not foolproof. Scam artists and professionals tenants know how to falsify information. Make sure you have the same move-in requirements for everyone. Don’t accept any renters without first receiving that all important security deposit.
Review a Negative Credit Report With a Prospective Tenant
If areas of a prospective tenant’s credit report alarm you, ask them about it. There are often mistakes on a credit report that the tenant may not even be aware of. In addition, good people fall on hard times and the blemish may not be a representation of their attitude toward financial responsibility. A spouse could have run up debt under their name or there could be fraudulent charges on the report that they are not even aware of. It never hurts to confront the tenant and listen to their explanation.
Rejecting Someone With Bad Credit
If the report turns back negative information about the prospective tenant and you decide not to rent to them because of their bad credit, the Fair Credit Reporting Act requires you to take certain steps. First, you must mail an “Adverse Action” letter explaining that you have declined the tenant’s application because of their credit report. You must include the exact reasons for your rejection. You are also required to provide them with the name, address and phone number of the agency you used to run the credit report and inform them of their right to request a free copy of their credit report from the agency within 60 days.
Renting to Someone With Bad Credit
You are legally allowed to require an additional security deposit or that the tenant has a co-signor, as long as you again provide the applicant with the “Adverse Action” letter stating that their bad credit is the reason for these additional requirements.
