Did you know that about 36% of the country’s households are renters? Finding renters should be a cinch with so many individuals looking for rental properties.
However, everyone interested in renting your house isn’t always a good renter.
People that pay their rent on time and take care of your property are what you’re looking for in a tenant. Filtering potential tenants is a critical step in the rental housing leasing process. Preventing future headaches by screening renters is essential for landlords who manage many properties or just a few.
And one of your first items on the list is running rental credit checks. For landlords, vetting tenants may be time-consuming. The least a landlord can do is run a credit check, look into a tenant’s criminal record, and verify their income and employment.
Keep on reading for our full breakdown of the tenant vetting process, with a deeper dive into the nuances of the tenant credit check.
The Fair Housing Act 101
Be sure to read up on the Fair Housing Act before starting the tenant screening process. This act protects tenants from discrimination based on seven protected classifications. It’s specifically tailored for the housing market while searching for accommodation.
According to this legislation, landlords cannot reject housing based on a person’s race, ethnicity, gender, handicap, or other categories. The act may also protect those with specific criminal convictions.
By consulting a lawyer about your application, you may both safeguard your rental from legal risk. Also, it’ll help you guarantee that the screening process is fair.
Rental Credit Checks: The Basics
An eviction may be brutal and typically results in your tenant remaining in your rental property for the duration of their term for free. Evictions are avoided at all costs by experienced landlords and property managers.
To frighten away renters with negative credit histories, just the act of requesting them to sign a consent form for a rental credit report is enough. This is particularly true if you charge a fee for the tenant’s application and credit report.
We still advise you to run the report. Because you’re enabling someone to reside in your property before you’ve received all of your payments, you’re effectively giving them credit. That they can pay their bills in the future is essential information.
What Information May Be Seen on a Tenant Credit Check?
Delinquent accounts and debt amounts are included in the credit report, as are real debt and payments necessary to fulfill them and payments made on trade accounts.
This report has two parts: an account summary and a detailed credit report. A credit score is a numerical number assigned to a person’s creditworthiness, and it is extensively employed across many sectors.
Next, we have the actual debt and the required payments. The check will show applicants’ real debt and the amount of money they must pay each month to pay it off. In most cases, your tenant’s monthly income should be at least three times the monthly rent.
Then, we have trade accounts. They’re more likely to pay their rent on time if they can keep up with their other obligations. Look at their payment history for each account they have, and see whether they’ve ever been late with a payment before. In this way, you’ll know whether or not they’ve paid on time each month and how far behind they are on their payments.
Check a Tenant’s Credit for Red Flags
It’s common for landlords to assume that a low credit score automatically disqualifies an application, but this isn’t always the case. What is the typical credit score required by a landlord? TransUnion claims that no single criteria determine whether or not a person has a “good” credit score.
Not every applicant’s financial situation is reflected in their credit score. According to a poll, four out of five landlords believe that examining an applicant’s entire credit report is essential for understanding their credit history and learning what goes into their credit score calculation.
Late Payments
Your goal is to find renters who will always pay their rent on time. It’s more likely that a renter will pay their rent on time if they have a history of making regular payments.
No one wants to rent from someone prone to not paying their bills on time, whether it rent or any other kind of payment they have. If your application has a history of not making timely payments on a credit card, loan, or utility bills, how can you be sure they won’t do the same when it comes to their rent obligations?
In the end, a credit report provides landlords with a comprehensive picture of a potential tenant’s financial history and may tell you whether you’ll have problems with nonpayment in the future.
Payment Gaps
An applicant’s credit history will include a period of seven to ten years in their credit report.
Landlords should watch for missed payments on loans, credit cards, and other debts. For landlords, it’s essential to have a renter who pays their rent on time every month.
Worrisome Debt Load
Landlords should look for large amounts of debt on a tenant’s credit record. Their monthly rent payments may be affected by a tenant’s indebtedness.
It’s essential to remember that Americans of all ages, from the youngest to the oldest, are saddled with heavy debt. Consider the kind of debt your renter has and whether or not it is deemed responsible or irresponsible obligations before signing a rental agreement with them.
Potential renters who have too much debt may be unable to keep up with their other financial commitments, making it difficult to find a new place of residence.
The rent-to-income ratio of your renter is also an essential factor to consider when assessing your debt burden. It’s common for landlords to search for a potential tenant who earns at least three times as much as they pay in rent.
Derogatory Marks
Negative ratings on a potential tenant’s credit report might imply that they are not financially responsible. This might involve the following factors.
- Credit card charge-offs
- Car repossessions
- Accounts in collection
- Bankruptcies
One sign that your application isn’t financially responsible is many collection accounts and judgments. This makes it more likely that they won’t honor your lease’s requirements about rental payments.
Recent Rental Delinquent Accounts
Credit checks may also be used by landlords to determine an applicant’s previous renting history.
Your potential renter’s rent history filed to a credit agency by the previous landlord will show up on their credit report. Rent arrears to a prior landlord may be a warning sign that your prospective tenant may default on their rent obligations if they move into your house.
In addition to a credit check, you may want to get a rental history report from potential renters. As a landlord, you may use the rental history report to learn more about your prospective tenant’s prior renting habits by looking at their previous locations and landlord information. Consult an attorney knowledgeable about credit checks and tenancy laws whenever possible.
Concerning Rental History: What Factors to Look For?
To ensure that a potential renter is as excellent as they seem, landlords utilize tenant screening services. However, what can be found out about a tenant’s renting history, and how can landlords go about doing this?
- Addresses and contact details of previous landlords
- Missing or late payments
- Evictions
Landlords require the permission of their prospective renters before they may begin studying about them. It’s a background check for landlords to determine what kind of renter they’re looking at.
In some instances, landlords don’t want to rely only on previous tenants’ rental history to select who would rent their property. Additionally, some landlords like to do a background check on the renter, including examining their credit, job history (including criminal records), and eviction history.
Looking Into Criminal Records
You may obtain a nationwide perspective of criminal records via services that aggregate data throughout the country, even though each state maintains its database.
You’ll be able to view the sort of offense committed, the state in which it happened, and the sentence for each criminal history record. As a landlord, you may use the reports for tenant screening to identify patterns or reoccurring issues. You have the right to refuse an application if there have been recent convictions or if there seems to be a pattern of crime and violence.
Although Fair Housing regulations do not expressly prohibit landlords from refusing to rent to felons, you must employ the same screening techniques every time you screen a new tenant.
Credit Check for Rental Screenings: Explained
There’s no denying that renting your property can be a fantastic source of regular income. After all, the U.S. real estate market is excellent for generating wealth in the long term. However, you can only reach that level if you have good tenants that pay the rent on time.
We hope that our guide has shed light on rental credit checks and why you need them. And, if you’re hungry for more tips and advice on property management, you should check out our real estate section.
