As a landlord or property manager, it’s vital to collect information such as previous rental history, including a background check and credit report.
Why a Credit Report is Essential for Landlords and Property Managers
Protect yourself and your rental property
Running a credit check helps landlords and property managers make sure they are renting to someone who will pay rent on time, won’t damage the property, and won’t default on payments.
What You Need to Know About Running Credit Checks on Tenants
Fair Credit Reporting Act
When it comes to running a prospective tenant’s credit report, it’s important to understand the terms and conditions to avoid any negative legal ramifications for yourself. The Fair Credit Reporting Act outlines how credit information should be collected, reported, and used:
“Information in a consumer report cannot be provided to anyone who does not have a purpose specified in the Act.”
This act safeguards consumers from credit reporting agencies that might provide inaccurate or misleading information. It’s crucial to review the terms and conditions before running a credit report to ensure compliance with all legal requirements. By doing so, you can protect yourself from any legal complications in the future.
How to Collect the Necessary Information from Potential Tenants
Provide a form up-front
As a landlord or property manager, it’s essential to collect the necessary information from potential tenants to make an informed decision. A well-designed application form can help you gather the required details, including employment history, income, and references, in one place.
When creating the form, it’s important to strike the right balance between asking for enough information and respecting the applicant’s privacy. Here’s what you need to run a credit check on a prospective tenant:
- Full legal name
- Social security number
- Date of birth
- Address history and former landlord/property manager (if applicable)
- Employer name
- Written permission to run a credit check
Remember that the more thorough your application form, the more the applicant feels your seriousness in the process, and the more likely they will provide everything you need for a credit score report.
What to Look For in a Credit Report
Credit score, payment history, outstanding debts, and additional credit inquiries
A credit report is an essential tool for landlords when evaluating potential tenants. It contains a wealth of information, from a person’s credit history to their current outstanding debts. However, not all credit reports are created equal.
When reviewing a credit report, it’s crucial to look for a few key components, specifically:
- Credit score
- Payment history
- Outstanding debts
- Credit inquiries
- Previous evictions
By analyzing each of these elements, landlords can gain a comprehensive understanding of a tenant’s financial health and responsibility. Armed with this knowledge, we as a property management company can make informed decisions about who to rent to and, importantly, who to avoid.
Using an Accurate Credit Report Service
Credit reporting bureaus are not the same as credit rating agencies
When it comes to locating an accurate credit report service, there are a few key factors to consider:
- Legitimacy
- Consistency of updates
- Cost
First, you’ll want to choose a credit reporting service that is legitimate and reputable, with a track record of providing accurate information. Look for customer reviews and ratings to help gauge the reliability of the service. Additionally, you’ll want to check whether the service provides regular updates and notifications regarding changes to your credit report. This will help you stay on top of any potential errors or fraudulent activity. Lastly, consider the cost and value of the service, making sure that you’re not overpaying for features you don’t need. By keeping these factors in mind, you can find a reliable credit report service that will help you stay informed and in control of your credit.
The three most popular credit bureaus in the US are Equifax, Experian, and TransUnion. They’re well-known, and each has different information included in their reports. No matter which credit reporting bureau you utilize, ensure they’re regulated under the Fair Credit Reporting Act.
How to Read and Interpret a Credit Report
Credit score, credit history, and public records
Once you have credit reports for rental applicants, how do you read them? The report is essentially a documented snapshot of their financial history, indicating their creditworthiness and trustworthiness in meeting their financial obligations.
The report contains several key elements:
- Tenant’s personal information
- Credit score
- Credit history
- Public records
Each of these components provides valuable insight into the tenant’s financial standing and should be analyzed carefully. Credit history and public record information should include:
- Open and closed credit accounts (loans, credit cards, etc…)
- Date accounts were opened/closed
- Payment history
- Current account balances
- Loan payments status(es)
- Bankruptcies
- Foreclosures
- Tax liens
- Civil judgments
Consideration of these aspects helps landlords establish clear guidelines for prospective tenants while also mitigating any potential risks associated with rental property ownership.
Depending on the credit bureau you use, you’ll likely see codes on the report. Equifax, Experian, and TransUnion offer guides with explanations of the codes they include on their credit reports so you can understand exactly what you’re looking at.
Tips on Denying Tenants with Low Credit Scores
It is legal to deny a prospective tenant based on a bad credit score
One of the most challenging decisions you may have to make is whether to deny a tenant with a low credit score. However, sometimes it’s necessary to protect your investment.
While it may seem like an easy decision, denying someone a place to live can be difficult. If you don’t want to have to handle situations such as this, Rhino Property Management is here to help. We offer tenant screening services so you don’t have to do any of it. We can also screen tenants based on the following:
- Income – too low or unverified with pay stubs
- Smoking
- Pets
- Criminal convictions
- Refusal to submit to a credit check or background check
Whether you own a single home or a multi-unit property, Rhino Property Management offers some of the best services to landlords in Utah. Contact us today to get started.