The best way to verify that applicants handle their financial obligations is to look at their credit reports. Someone with poor credit is more likely to be evicted in the future, resulting in average costs of $3,500 to $10,000. When screening an applicant, a landlord can obtain a credit score or view the entire credit report. The credit score is essentially a summation of the credit report. It considers all the factors found in the applicant’s history and gives out a single number that rates the likelihood of handling their financial obligations responsibly. If their credit history demonstrates poor financial management, they’re likely to continue having problems. This means that a landlord would certainly rather have someone with a higher credit score (625+) for their rental property.
All of this data forms a history that a landlord must collect to determine whether the applicant is likely to pay the rent.
Here are the six main steps to run a credit check:
This is the first step, even though it’s natural for a landlord to distrust what the applicant themselves put on the application.
However, asking a free-form question like “What will we find when we pull your credit report?” serves several purposes:
Landlords don’t have to trust the information given at this point, as everything will be verified in later steps. However, since it’s such an easy step, all landlords should do this.
Be sure to ask all applicants the same questions, or you could become the target of a discrimination lawsuit.
The Federal Credit Reporting Act (FCRA) requires landlords to obtain a tenant’s consent to run a credit check. Written consent can be given on the rental application form itself, on a separate consent form, or through a tenant screening service.
Be sure that your consent form mentions any way that you plan to gather information. For example, if you plan to talk to prior landlords, employers, or other references about their financial history, mention that on the release.
Have an attorney review your consent form to ensure you’re covered.
In addition to getting the tenant’s consent, most tenant screening services require verification that you are actually a property landlord. For example, a reputable company like Equifax won’t allow just anyone to pull a credit report for another person.
Landlords are usually required to provide:
Some landlords prefer to use services that collect both the general rental application and the information needed for tenant screening. However, other landlords elect to have a separate application form, evaluate the applicants, and then decide who moves to the screening process.
To run a credit check, all you need is:
While credit checks can still be pulled without an SSN, not all tenant screening services will allow you to move forward without one.
Also, many tenants are hesitant to give a landlord their SSN, but they will gladly give it to a tenant screening service. If you’re keeping the processes separate, remember that asking for an SSN might turn away some tenants.
Most landlords will use a tenant screening service at this point to pull reports. These screening services usually pull eviction history, criminal background reports, and credit reports. Some tenant screening companies will offer a financial report of the prospective tenant.
Landlords can also pull credit reports from the major credit bureaus, such as Equifax, Experian, and TransUnion.
Of course, pulling comprehensive screening reports will cost more money. However, in most states (Massachusetts is an exception), landlords can charge an application fee to offset that cost, so there’s no good reason not to do it.
Some landlords may want to pocket the application fee rather than ordering reports, but the small cost of getting a highly-vetted and qualified tenant is worth much more.
We reviewed 33 different tenant screening services that provide credit reports. Our top 3 favorites were:
Some tenant screening companies provide credit reports à la carte, while others provide them as part of an all-in-one service.
A la carte services will typically offer credit checks for around $15 – $22, such as:
Comprehensive services that offer background, credit, and renter histories generally cost around $30 – $55, such as:
This option is free for landlords who don’t want to pay for full screening reports. Asking for a copy helps landlords who want to keep the application money, can’t charge an application fee, or choose to keep costs lower for applicants by not charging a fee.
Everyone is entitled to a free copy of their credit report from each of the three main credit bureaus once per year. The applicant can request this free copy and then pass it on to the landlord.
This isn’t ideal for a few reasons:
An essential part of this process is to analyze the applicants’ credit history at every step.
Each step of the application process should see the number of applicants remaining whittled down until there are only a few left. At this point, landlords might need to get clarification on certain aspects of their credit reports. This could happen if one applicant appears extremely qualified but has a missed payment on their report.
In this case, it’s probably worth a quick email to the applicant to get some explanation. If they respond satisfactorily, the landlord can move forward confidently.
It’s not considered best practice to disqualify an applicant for a single infraction unless it’s severe. You’ll miss out on good tenants who have an otherwise terrific application.
A credit report gives an overview of your tenant’s financial health. These reports start out with overviews and simple information but then go very in-depth if you want to find underlying reasons behind their score.
Most landlords are familiar with credit scores and what a good score is. The best practice for a landlord is to have a minimum score that all tenants must pass before moving on. If you reject anyone under 600 (for example), you can easily whittle down candidates and also be less likely to be sued for discrimination.
Here’s a screenshot of an actual credit report pulled using Avail’s service:
As demonstrated in the previous image, credit usage is important enough to be included in the overall summary.
Credit usage shows the percentage of their available credit that they have used. Having a low number here shows that they’re not prone to spending when they don’t have money. It also shows that if the tenant gets into financial trouble, they’ll likely have more breathing room because they can use that credit. While it can’t be used to pay rent, it can help with their other bills, freeing up their cash for rent.
Again, Avail chooses to show this at the top of their report. As a landlord, what else is more important? If the applicant has a pristine history of paying their financial obligations, you can be relatively sure that you have a fiscally responsible tenant.
These are items like bankruptcies, late payments, collections, and more. Here’s what a summary of that might look like (along with age of accounts and inquiries):
Most credit reports include this information to help landlords verify employment, income, and rental history.
Often, landlords can see individual trade lines (such as a credit card or loan), how much the applicant owes, and whether all their payments have been made on time.
Each landlord has a responsibility to deny applicants without being discriminatory. The Fair Housing Act (FHA) and the FCRA set standards that must be followed.
The FHA lists protected classes that cannot be the basis for rejecting an applicant. Landlords are certainly within their right to reject an applicant based on their credit score, but it’s easy for the landlord to appear discriminatory if they aren’t careful.
