Are you a landlord? Don’t rent to just anyone. Learn how to do a background check on a tenant to find a reliable and responsible tenant for your property and avoid costly mistakes.
Renting out a property can be a significant source of income for a landlord but it also comes with its fair share of risks. One of the most crucial steps in the tenant screening process is conducting a thorough background check. By gathering relevant information and assessing a potential tenant’s history, you can significantly reduce the chances of encountering tenant issues in the future. In this article, we will go through the steps involved in performing a comprehensive background check on potential tenants and ensuring a reliable and responsible rental process.
What is a Tenant Background Check and Why is It Important?
A tenant background check is a verification process conducted by rental managers to confirm if a prospective tenant is the one they claims to be. A tenant background check also includes criminal history, education, employment history, and other activities from the past.
It’s important to screen prospective tenants thoroughly before allowing them to sign a lease agreement if you want to make sure you’re getting the best and most trustworthy renter.
The purpose of running background checks on tenants is to avoid dealing with problematic tenants. It can help you to avoid tenants who have criminal backgrounds, drug problems, and bad credit. Rental background checks allow landlords or property managers to identify the tenants having a history of property damage which is helpful to prevent any damage to your property.
Receiving rent on time and security of your rental property are the most important priorities of landlords while renting the property. That’s why, a background check helps you get a capable tenant who can secure your property as well as pay rent on time. A tenant background check includes criminal history, education, employment history, and rental history, so it will be easier to filter out a perfect tenant.
High-quality tenants prefer properties that conduct background checks. They are also willing to pay a higher rent or give a higher security deposit, which provides peace of mind in protecting the property and returns on investment. Rental background checks also help to develop more effective screening processes over time for identifying patterns and adjusting their screening criteria as needed.
An intensive screening process guarantees that the prospective tenants are dependable and appropriate for tenancy. Without legitimate screening, landlords run the risk of renting out to poor-quality tenants on their property. This can be a very costly mistake.
Being mindful of the past actions of residents makes you a more knowledgeable landlord and lets you answer primary questions. Or you can get the help of a leasing property management company. They will guide you.
Prevention is always better than cure. Background Checks help to mitigate the risks related to a tenancy in a property which provides peace of mind for landlords, enhancing an excellent rental experience.
What Does a Rental Background Check Cover? (Most Landlords Use)
Landlords run a background check to understand the prospective tenant suitable for the rental property with complete confidence that it eliminates future problems. This ultimately pulls out the landlords or rental managers from the management stress for any damages or violations of residential laws from the tenant. The background checks consist of reports about prospective tenants’ behavior, roles on a previous property, and financial ability. All these reports can’t be guaranteed as full proof but can be considered to pre-determined the minimum qualifications of the local or state residential practices. The elements of the rental background checks are elaborated below:
Credit Report: This credit report reveals the applicants’ payment records, debt load, and credit score. A low credit score indicates financial instability, which could make the applicant a risky tenant. Landlords or rental managers can use this information to identify the applicant’s ability to rent payments on time. Late payments or unpaid rent hurts the investment.
Also Read: What do most landlords use for check credit?
Criminal Background: Safety must be the top priority. If the applicant has committed any crime, this report allows landlords to see past criminal data reportable from the courts. It includes descriptions of the crime and helps the landlords or property managers maintain the safety and security of their property or other tenants.
Past Evictions: Landlords must ensure that he has a trustworthy and reliable tenant in the property. While some applicants may have evicted from a previous property due to unacceptable actions. It is a major red flag for landlords or property managers, as it concerns the applicant’s reliability as a tenant.
Employment and Income Verification: Any violation of laws from tenants can harm the landlord’s reputation and make them liable for penalization. The concerned authority should recognize the employment and income source of rental applicants. This helps landlords determine the affordability and character of individuals living in rental properties as a tenant.
References Check: Tenants on rental application forms can attach many references so landlords or rental managers can gather information about the prospective tenant by contacting his/her previous landlords or other authorities. This helps authorize the applicant’s character and reliability before the rental agreement.
Sex Offender Registry Check: Maintaining a safe environment in the rental property is the primary responsibility of landlords and property managers. This helps to identify if any rental applicant is recognized as a registered sex offender because a big problem comes with them.
How to Run Background Check on Tenant in 7 Simple Steps
A tenant background check is the most critical task for finding reliable and trustworthy tenants for rental property. The background check on potential tenants is a simple yet highly effective way to ensure peace of mind and safeguard the investment. Let’s walk through effective ways to conduct thorough rental background checks, equipping you with the knowledge you need to make informed decisions and welcome the perfect tenants into your rental property.
1. Get Financial Information/Employment Information
Income verification of rental applicants is a must for tenant background checks. It helps you to understand if they are capable of paying rent from their current employment level or not.
OKC Home Realty Services requires that a tenant’s take-home pay be three times the rent. We require the tenants to submit pay stubs or bank statements as proof of income. We don’t just take their word for it.
Questions to consider :
- How do you know if you can afford a tenant to rent from you?
- How long has the occupant been in his current position?
- In the last several years, has he or she moved jobs many times?
If yes, it is very important to find out why they have changed/switched their jobs. Was it because of their personal reasons or was it due to their unacceptable behavior?
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2. Obtain County And State Criminal Records (Nationwide):
OKC Home Realty Services also performs criminal background checks on all tenants. We not only check the Oklahoma records but also from all 50 states for every prospective tenant during a criminal background check.
We look for patterns:
- If there was criminal activity, how long was it? Many times people acted foolishly when they were young and got into some trouble. But now they are grown up.
- Are you sure you have the person? If the applicant has a common name like John Smith, chances are there are dozens of criminal records that come up for that name. It may be a nightmare to try to figure out who is whom in that case.
- How serious are the offenses? If all that comes off are speeding tickets, it’s not that big a deal.
Also Read: squatters rights Oklahoma
3. Ask For Previous Landlord Reference
It is very important to take the previous landlord’s reference during the rental background check process of a prospective tenant. OKC Home Realty Services sends a written request to the former landlord. Here are some considerations for background checks:
- Not all landlords tell the truth about their tenants. They may say good things just to get rid of them.
- Sometimes we have the opposite problem. A landlord may refuse to provide a reference because they are trying to prevent their tenant from moving.
- We generally won’t rent to a tenant if they can’t provide a convincing story about where they lived for the last year. If they can’t provide that landlord reference, we usually won’t rent to them. There are exceptions, but the stories need to make sense and be backed with evidence.
Recommended Article: How to avoid squatters from rental property
4. Check Eviction History
An eviction on a tenant’s records isn’t an automatic no unless it was within the last year. If a tenant does have evictions on their record, They had better be squeaky clean in other areas. OKC Home Realty Services performs tenant background checks that include a search for evictions in 50 states.
Eviction records may contain some or more of the following information:
- Dates and locations of any previous evictions.
- Reasons for the eviction, rental, or any possession judgments (judgments apply to the rental sum uncollected by the landlord).
- The court’s outcome or conduct.
Recommended Article: Eviction Process in Oklahoma
5. Interview The Applicant In Person (A Bad Idea)
In my opinion, personal interviews are a bad idea. The application and associated materials should speak for themselves. You run the risk of running afoul of the Fair Housing Act by giving one set of applicants a leg up on another based more on appearance than strictly their creditworthiness, which should be the sole basis of the screening.
6. Obtain Credit Reports
OKC Home Realty Services doesn’t have a minimum credit score to approve an applicant. Here are some considerations:
- A Tenant with a credit score in the 550 range (Considered to be terrible credit) may have that due to unpaid medical bills but has an excellent track record in terms of paying rent.
- A credit report may show that a prospective tenant is up to their eyeballs and then some in debt and therefore may be a poor credit risk for your rental property.
A tenant’s credit report has all sorts of useful information such as foreclosures, bankruptcies, illegal detainer cases, and evictions.
It also shows the history of loan payments and the status of their credit accounts. You can access credit history reports electronically from the three major credit reporting bureaus:
OKC Home Realty Services runs credit history checks on all prospective tenants.
Request Credit Report Authorization: In order to legitimately collect the upcoming applicant’s credit records, the landlord obtains the tenant’s permission to run a credit check.
Important factors to consider while obtaining credit reports are:
- Request Credit Report Authorization: The landlord must apply for approval to conduct a credit check in order to legitimately obtain the forthcoming applicant’s credit records.
- The tenant should be told of three items in the letter: the reason for the denial, the name, and the address of the agency that published the negative details.
- The right of the applicant to receive a free copy of the report by requesting it within 60 days.
7. Make A Decision
Go back to the very beginning where you started your entire process of checking a tenant’s background to determine whether a prospective tenant is a match or not.
In the end, as a landlord, you’re the one who knows everything about your property. You have the opportunity to be versatile as an independent landlord but do not feel like you need to hurry the process.
Consider each point you’ve noted down or learned about the tenant and check if there are areas with flaws and if you could change them or not. If you can make sure that you’re able to convince a tenant regarding these flaws, you can move a step further.
You can also screen more prospective tenants with a simpler tenant screening process from “SmartMove“ so that you find the best match without sacrificing any of the important steps. Choosing the right online tenant screening service implies that you can trust accurate information.
Recommended: How to Deal with bad tenants as a landlord?
Websites such as “SmartMove” provide you with a tenant:
⭐ Credit report
⭐ Crime report
⭐ Eviction check
⭐ Report from Income Insights
⭐ ResidentScore, so that you can feel more secure about your tenant decision.
Important factors to consider
- Don’t stress out.
- Think twice before you make your final decision.
- Check if there are areas where you could make a change.
How Long Do Tenant Background Checks Take
The duration of tenant background checks depends on the availability of information by the prospective tenant on the rental application form and the efficiency of the rental screening services company or landlord conducting the check authorization form. Generally, rental background checks take 24 hours to a few days to complete.
In most cases, landlords aim to complete the background screening process as quickly as possible to minimize vacancies and secure suitable tenants. However, it’s crucial to balance efficiency and thoroughness to make informed decisions while complying with legal and regulatory obligations.
To make background checks more accessible for landlords with the motive to safeguard the investment and peace of mind, here are the 7 Best Online Tenant Screening Services 2023 researched by Investopedia based on price, speed, breadth of services, and compliance with the FCRA.
- Best Overall: First Advantage
- Best for Realtors: SmartMove
- Best for Multiple Properties: RentPrep
- Best Value: E-Renter
- Most Comprehensive: VeriFirst
- Best Criminal Background Search: BetterNOI
- Best Predictive Model: RealPage
Legal Considerations in Tenant Background Checks
Landlords should be aware of legal considerations when conducting background checks on tenants. They can vary from state to state but familiarizing with them helps you stay confident to be protected from liability.
The key legal considerations include:
Fair Housing Laws: Federal and state fair housing laws prohibit landlords from refusing a prospective tenant to rent based on racism, nationality, origin, religion, sex, familial status, or disability. Rental Background checks need to be conducted, complying with laws in a non-discriminatory manner.
Tenant Privacy Laws: Every tenant has a right to privacy, and landlords cannot conduct background checks without their consent. All information about tenants must be respected and protected from misuse. Generally, landlords must take a signed release from the tenant, clearly explaining its purpose and use.
The Fair Credit Reporting Act (FCRA): Landlords must comply with the FCRA when they obtain a tenant’s credit report. This includes getting the tenant’s written consent before obtaining the report and providing the tenant with a copy within 30 days.
State and local laws: Landlords must also comply with state and local laws that may regulate rental background checks. These laws can vary from state to state, so landlords must check with their state’s Department of Consumer Affairs or Attorney General’s Office to determine what laws apply.
How Much Does a Tenant Background Check Cost
Generally, tenant background checks cost from $25 to $75 per rental applicant. This cost can vary according to the information type you need and the screening company. The location also influences it due to state laws.
Landlords or rental managers often pass on these costs to the rental applicants, so potential tenants might be required to pay for the background check as part of the application process. It also helps to cut off the unserious applicants towards the rental agreement and makes the screening process shorter.
Remember that prices can change over time, so the best way is to check with well-reputed rental screening companies or landlords to get updated with the latest pricing information.
Can Landlords Conduct Their Own Renter Background Checks?
Yes, landlords can conduct their renter background checks, but they must comply with the Fair Housing Act and other federal and state laws without violating their tenants’ rights. Landlords must have the applicant’s consent for running a background check on them through online screening, public records, or their previous landlords or employers and make fair housing decisions. Last but not least, Staying up-to-date with rental laws and regulations in your area is always important.
As a landlord, tenant screening is not an easy job. You have to give your rental property to someone who is capable of handling your property. All these steps mentioned above are the most effective ways to run background checks on tenants and find the best one for rental agreements. Now you know how to do a background check on potential tenants for a positive rental experience and safeguard your real estate investment.
Leasing property to a bad tenant can lead to eviction. Learn more on Oklahoma notice to vacate.
If you are looking for a trustworthy manager to take care of your rental properties, contact OKC Home Realty Services, the best Oklahoma City Property Management.
FAQs About Tenant Background Check
How many years back can landlords go during background checking of tenants?
Information is deemed redundant if, for negative information or for bankruptcies longer than 10 years, it is more than seven years old. For a landlord to have a blanket policy of refusing to rent to someone with a criminal record may be a breach of the Equal Housing Act.
Does a good credit score automatically mean that the tenant is at low credit risk?
No, you should never approve a tenant based only on their credit score only.
What are the most important items on a tenant screening report?
Income verification, a good landlord reference, and a background check (Credit civil and criminal).
Why is it better to have a property management company do the tenant screening?
The management company should be able to avoid committing any Fair Housing Violations in the process of advertising and screening applications. They will also be more objective and a better judge of credit risk.
Is it legal to run a criminal background check on a tenant without their permission?
No, it is not legal to run a criminal background check on a tenant without their permission. It is important to have the tenant sign an agreement consenting to the background check before proceeding. Failure to obtain their approval could result in legal consequences.
What happens if a tenant fails the background check?
The landlord can refuse a tenant for rental if the tenant's background findings do not match the landlord's requirements but must comply with laws.
Is it legal for landlords to run background checks on tenants?
Yes, landlords can legally run background checks on tenants, but they must comply with federal and state laws.
What should I do if I find negative information on a tenant background check?
You must decide how to proceed if you find negative information on a tenant background check. You should contact the applicant to get their explanation for the negative information and consider the applicant's entire background. Remember that you cannot discriminate against tenants based on their criminal history or other protected categories.
Does a background check show rental history?
Yes, a background check shows the rental history information of rental applicants. Landlords and property managers request a tenant's rental history to gather information about their past behavior as a renter and determine the reliability of a potential tenant.