A tenant credit check can help a landlord tell the difference between a prospective tenant who will be great and one who will always pay the rent late. Some landlords choose to run a credit check on their own, while others use an online screening service or property management company.
In this article, we’ll take a look at how credit checks work and how much they cost, what to look for on a tenant credit check, and the information needed from a prospective tenant to run a tenant credit check for a rental property.
Key takeaways
- A tenant credit check helps a landlord determine if a tenant is qualified to rent a property.
- A landlord must follow the Fair Credit Reporting Act guidelines when running a tenant credit check.
- There are 4 steps to run a tenant credit check: Obtain a rental application from a prospective tenant, receive permission from the tenant to run a credit check, collect a credit check fee from a tenant, and verify landlord information with the company running the credit check.
- Information on a tenant credit check generally includes a tenant’s bill paying history, amount of income and debt, and whether the applicant has any liens or judgments.
- Sources for obtaining a tenant credit check are the major credit bureaus, online tenant screening services, and local property management companies.
What is a tenant credit check?
A tenant credit check is part of the routine screening process when prospective tenants apply to rent a property. Running a credit check on an applicant helps a landlord to determine if an applicant is qualified to rent a property.
A tenant credit check will indicate if a tenant has a history of paying bills on time, how much income and debt a tenant has, and whether or not a prospective tenant has financial problems, such as having a lien or judgment against them or being behind on child support.
If a prospective tenant is behind on other payments such as credit cards or a car payment, the tenant may eventually fall behind on the monthly rent as well. A tenant credit check may also contain an applicant’s credit score as determined by one of the three main credit bureaus: Equifax, Experian, and TransUnion.
Benefits of a tenant credit check include:
- Helping to avoid signing a lease with a tenant who will not pay the rent on time.
- Giveing a landlord a better idea of how responsible and reliable a tenant is based on previous payment behavior.
- Making it easier to calculate a tenant’s debt-to-income ratio to help a landlord understand if the prospective tenant can afford the rent.
- Allowing a landlord to compare the information on a tenant’s rental application to the data on a tenant credit check.
Information needed to run a tenant credit check
A landlord or property manager is required to follow the Fair Credit Reporting Act guidelines and obtain permission from a tenant before running a credit check. Once a tenant credit check is received, a landlord generally needs additional permission from a tenant before contacting an employer or creditor.
Here is the general information required to run a tenant credit check:
1. Obtain a rental application from each tenant
Each prospective tenant over the age of 18 must fill out a rental application with the following information:
- Applicant information including full name, social security number, driver’s license number, birth date, home and work phone numbers, and email address.
- Current address including move in and move out date, landlord name and phone number, current monthly rent, and the reason for leaving.
- Other occupants who will be living in the property, with a list of names and birthdates for each occupant over and under the age of 18.
- Employment and income information, including monthly salary, supervisor name and contact information, and start and end date of employment.
- Emergency contact information and relationship to the tenant.
- Personal references and relationship to the tenant.
- Background information, including if a tenant has ever filed for bankruptcy, been convicted of a crime (including the type of offense and where the offense occurred), intentionally refused to pay rent when due, and if a tenant has ever been evicted or owes money to a previous landlord.
- Vehicle information for each vehicle that will be parked on the property.
- Other information, such as a tenant providing information to help a landlord evaluate the rental application and tenant credit check.
Websites such as LawDepot offer free state-specific rental applications a landlord may download and print, while tenant screening services such as RentSpree automate the tenant credit check process online.
2. Get the tenant’s permission to run a credit check
Each applicant should sign the completed rental application that will be used to run a credit check on the tenant. The rental application should include a statement informing the tenant that a credit check will be run, and that by signing the tenant acknowledges and gives the landlord permission to run a tenant credit check.
3. Collect a tenant credit check fee from each adult applicant
Most cities and states allow a landlord to collect an application and credit check fee from a tenant to pay for the cost of running a tenant credit check, according to the legal resource website Nolo.com. Prospective tenants should know the amount and purpose of the fee, and understand that paying the fee does not guarantee a tenant will be approved to rent the property.
Fees paid to the three major credit bureaus – Equifax, Experian, and TransUnion – or an online tenant screening service generally run between $25 and $75, depending on the information requested. In some cases, a tenant screening company will collect a credit check fee directly from the applicant.
4. Confirm landlord or property manager identity
Most tenant screening services will ask for proof of identity before running a tenant credit check by requesting information such as:
- Landlord identification document such as a driver’s license copy.
- Proof of landlord residence such as a bank, mortgage, or utility statement.
- Verification a landlord owns the rental property such as a mortgage statement for the rental property loan or property tax bill.
- Verification that a property manager is authorized to run a tenant credit check on behalf of a landlord, such as providing the first and last page of the signed property management agreement.
An advantage of using an online screening service to run a tenant credit report is that an applicant gives the screening company permission to provide the landlord with the tenant credit check report.
Oftentimes the process takes only a few minutes, and a landlord receives an email with a link to view and download a tenant’s credit check.
What to look for on a tenant credit check report
A tenant credit check report can provide a landlord with an abundance of information about a prospective tenant. Information provided on a credit check usually cover the preceding 7 to 10 years and includes the following information:
Credit score
Not all tenant credit check reports provide a tenant credit score, depending on the tenant screening service used. If a report does contain a credit score, the most commonly used is the FICO score.
A FICO score ranges from 300 to 850. In general, the higher a tenant’s credit score the lower the potential risk. As a rule of thumb, a credit score above 650 may indicate a medium or acceptable level of risk.
Adverse information
Includes negative items such as accounts that are past due, in collections, or charged off as uncollectible by a creditor. Common types of delinquent accounts a landlord may find include late credit card or car payment, delinquent student loans, or unpaid child support.
Pending legal actions
A prospective tenant who is involved in a legal action such as a lawsuit from a debtor trying to collect on a judgment or a pending bankruptcy filing may soon find it difficult to pay the rent for the home the tenant is applying for.
Personal credit and loan accounts
A tenant credit check will provide a landlord with information on each credit and loan account a prospective tenant has, including the current balance and credit limit, number of late payments, and how late the payments were – such as 30, 60, 90 days, or delinquent and sent to collections.
Where to get a tenant credit check
Credit bureaus
Each of the three major credit bureaus provide tenant credit checks for landlords:
Online tenant screening services
Online tenant screening services simplify the process of running a tenant background check. Prospective tenants fill out a rental application with the screening service, pay the application fee, and authorize the tenant screening company to send the credit report directly to a landlord.
Some tenant screening services to consider include:
- AAOA (American Apartments Owners Association) plans start at $19.95
- E-Renter tenant screening packages begin at $21.95
- RentPrep offers tenant screening packages starting at $18.95
- TransUnion SmartMove offers pay-as-you-go rental screening services
Property management companies
The best local property management companies will screen prospective tenants and run a tenant credit check when they lease a vacant property.
Some managers work with the credit bureaus or online tenant screening services directly, while others use a proprietary in-house tenant screening system to meet the needs of landlords in the local rental market.
Additional resources
For additional information about using credit or consumer reports, including issuing adverse action notices to comply with federal law, see https://www.ftc.gov/tips-advice/business-center/guidance/using-consumer-reports-what-landlords-need-know.
Closing thoughts
Although running a tenant credit check may seem like a lot of extra work, the potential consequences to not checking a tenant’s credit can be serious. A landlord may end up with a tenant who endangers the neighborhood, or who ends up having to be evicted for not paying the rent. A tenant credit check helps a landlord to select the most qualified tenants who will take care of the property and pay the rent on time.
