How to Run a Credit Check on a Tenant: Top 6 Ways

Why running a credit check on tenants is a must-have for landlords. Learn the best practices for performing tenant credit checks to decide who to rent to.

A credit check on a tenant is a process in which a landlord or a property manager reviews a potential tenant’s credit report to assess their financial responsibility and creditworthiness. The credit check report provides information on the tenant’s credit history, payment history, outstanding debts, and overall credit score. This article will explain how to run a credit check on a tenant as a landlord.

Importance of Credit Checks on Tenants

The purpose of conducting a credit check on prospective tenants is to ensure that they will pay rent on time and fulfill their financial obligations in the future when they are under a lease agreement. If a tenant has a good credit score and a positive credit history, it indicates that they are financially responsible and very likely to pay rent on time. Whereas, if a tenant has a low credit score or a history of late or nonpayment, then it is a matter of concern.

Credit checks are typically conducted as a part of a comprehensive tenant screening process, including other checks on tenants like employment, income verification, rental history, and criminal background. The credit check results, along with other screening processes, are used to make an informed decision on whether to accept or reject a tenant’s rental application.

Key Takeaways

Credit checks play an important role in the tenant screening process for landlords and property managers for several reasons:

• Assessing tenant’s financial responsibility and creditworthiness.
• Reducing financial risk by filtering the tenants with poor credit history.
• Ensuring timely rent payments by renting out to tenants with positive credit history.
• Fulfilling legal compliance to avoid legal complications.

What Information is Needed for a Credit Check?

There are some guidelines for both landlords and tenants that are necessary for a credit check. Basically, you need your tenant’s basic information, such as full legal name, address history, social security number (SSN), and date of birth.

However, other than some basic information, you may need additional information:

Employment Details: Through this information, you can get an idea of the current employer of the prospective tenant and position, which can help you assess income stability.

Income Verification: Although it’s not always required on credit checks, however, you can request proof of income such as pay stubs and tax returns for broader tenant screening process.

Landlord Information: You may be required to submit your information to the credit reporting agency to verify that the request you made is legitimate.

But you must comply with the guidelines as mandated by the Fair Credit Reporting Act (FCRA) and use reputable credit reporting agencies for reliability and accuracy of the credit information.

How to Run a Renters Credit Check in 6 Steps?

Running a credit check on tenants requires compliance with federal and state laws, including the Fair Credit Reporting Act (FCRA). Here are the steps to follow to run a credit check on tenants:

• Obtain written permission: Before you run credit checks on tenants, you must obtain their written permission. You can get permission by having them fill out the rental application that includes a section for authorization to perform a credit check.
• Choose a credit reporting agency: There are many credit reporting agencies that offer tenant screening services. The three main credit bureaus include Equifax, Experian, and TransUnion. Information from these credit bureaus is crucial in assessing a tenant’s financial reliability.
• Provide tenant information: In order to perform a credit check on tenants, the credit reporting agencies require the tenant’s name, social security number, and other identification information. You need to provide that information to them.
• Pay the fee: You need to pay credit check fees to credit reporting agencies for their tenant screening services. These bureaus charge generally around 25$ to $75 per applicant depending on the information requested.
• Review the credit report: Once you receive the prospective tenant’s credit report, you need to review it carefully to determine the tenant’s creditworthiness. Make sure you look for signs of financial instability, a history of late payments, or bankruptcies.
• Use the information to make an informed decision: Once you reviewed the credit report of the tenants, use the information to make an informed decision in order to approve the tenant’s application. Although poor credit score is one factor to consider deeply, it doesn’t necessarily mean that the tenant with a poor credit score will be a bad tenant.

Also Read: What is Tenant Verification and steps to verify it

How Long Does a Tenant Credit Check Take?

The time it takes to complete a tenant credit check can vary depending on a few factors like the credit reporting agency, the volume of requests they receive, and the responsiveness of the tenant in providing necessary information. After you have all the necessary information, the credit check can typically be completed within a few business days. 

Online credit reporting agencies also offer a quick turnaround time for tenant credit checks. Some agencies can provide credit reports within minutes of receiving the tenant’s information, while others may take a few hours or up to a day. If you choose a traditional credit reporting agency, then the process may take a little longer, as you may need to submit a written request and wait for a physical copy of the credit report to be mailed or faxed to you.

What to Look for in a Tenant Credit Report?

A tenant credit report is a document that provides information about a potential tenant’s creditworthiness and financial history. The information from different bureaus and services is different, but all credit reports contain:

Credit Score: A credit score is a three-digit number that represents the tenant’s creditworthiness. However, there is no one-size-fits-all to this but you can follow these general guidelines:

• 700+ : Excellent credit, low risk
• 650-699 : Good credit, moderate risk
• 600-649 : Fair credit, higher risk Below
• 600 : Poor credit, high riskredit score.

Payment History: This shows the tenant’s history of paying bills on time or if there are any late payments or collections accounts.

Debt-to-income Ratio: This ratio shows the tenant’s ability to manage their debts. A ratio below 36% is generally considered a healthy level of debt.

Employment History: This shows that the tenant has a stable source of income.

Criminal Record: A criminal record contains criminal convictions or a history of evictions, which is a red flag.

Credit Inquiries: This shows if the tenant is applying for credit frequently, which can be a warning sign.

Personal Information: Personal information on the credit report is helpful to make sure that the personal information, such as name and address, matches the information provided by tenants on their rental application.

Also Read: Can Police Remove Squatters?

What If a Tenant Cannot Authorize a Credit Check?

It can be a challenge for landlords to understand the financial habits of prospective tenants if they cannot authorize a credit check. But there are still alternative ways for it. Landlords can request other information from the tenant, such as income documents, employment, and rental history. They can also explore other methods to screen the tenant properly, such as using soft inquiry services or credit reporting agencies to demonstrate their financial stability and responsibility. The landlords shouldn’t underestimate the Fair Credit Reporting Act guidelines for the credit check process.

OKC Home Realty Services performs tenant background checks and credit checks on behalf of landlords. Contact us if you are looking for a property management company in Oklahoma City for your property management needs.

FAQs on Running a Credit Check on Tenants