What to Look for in a Tenant Credit Report and Where to Get One

Have you ever had a nagging feeling that you're about to rent to the wrong person?

Imagine a tool that gives insights into a prospective tenant's financial history, informing your decision on whether to have the applicant sign on the dotted line. Sounds essential, doesn't it? That's where a tenant credit report comes into play.

Whether you're a seasoned landlord or renting out for the first time, understanding a tenant's creditworthiness is a must. This knowledge can make all the difference between smooth sailing and rough waters in your renting journey.

Ready to enhance your tenant selection process? Let's dive in and explore the ins and outs of tenant credit checks.

What is a tenant credit report?

A tenant credit report is a detailed document that provides information about a prospective tenant's credit history and financial reliability. Landlords and property managers commonly use it as part of the tenant screening process to assess the financial responsibility of an applicant.

This report includes details such as the tenant's credit score, payment history, outstanding debts, and any records of bankruptcies or evictions. By reviewing this report, landlords can gauge the likelihood that the tenant will pay rent on time and fulfill other financial obligations related to the lease.

It serves as an essential tool in helping independent landlords make informed decisions about whom to rent their property to, reducing the risk of financial loss from non-paying tenants.

Why is it essential to credit-check a tenant?

It's important to credit-check a tenant to ensure the stability and consistency of rental income for the property owner. By evaluating an applicant's financial track record, landlords can identify patterns of responsible or irresponsible behavior, enabling them to select tenants who are less likely to default on payments.

Additionally, a comprehensive screening process protects the property's value by minimizing the chances of lengthy eviction processes, which can be both time-consuming and costly. Furthermore, understanding a tenant's creditworthiness helps build a trustworthy landlord-tenant relationship, fostering a positive rental experience for both parties.

What’s included in a renter's credit check?

Rental property owners must carefully evaluate a tenant's credit report to pinpoint any red flags. To make renting to potential tenants less risky, familiarize yourself with the different components of a credit report so you’re well prepared to choose financially secure renters every time. 

• Personal profile: This includes personally identifiable information, such as name, date of birth, social security number, current and past address, and current and past employers. 
• Current credit accounts and credit history: Credit reports offer details on credit and loan accounts opened by the prospective tenant, otherwise referred to as trade lines. They typically include all of the information surrounding the account, such as the type of loan, when it was opened, the credit limit, monthly balance, current status, and payment history. 
• Credit inquiries: Whenever an account is pulled for a credit check, a credit inquiry is recorded. When someone authorizes a lender, company, or landlord to review their credit report upon processing a loan request, it’s referred to as a hard inquiry, which can negatively impact a credit score. In contrast, when a consumer checks their report, it's known as a soft inquiry and does not affect their credit score. 
• Public records and collections: Public records, such as bankruptcies, civil judgments, and tax liens, may be included on a tenant credit report. Additionally, any past-due accounts from medical, retail, or credit card bills that have been turned over to collections will appear in the report. 
• Credit score: Under federal law, credit bureaus don’t have to provide proprietary information with free credit reports. However, credit reports for sale do include credit scores calculated by the credit bureaus. 

How to run a credit check on a tenant

Securing a trustworthy tenant is a top priority for landlords, and understanding how to run a credit check properly is an essential step in the vetting process. Let's take a closer look below:

1. Obtain permission: First and foremost, always get written consent from the prospective tenant. This is usually done via a rental application where the tenant agrees to a background and credit check.
2. Choose a reputable service: There are several tenant screening services available online that can provide credit reports and other background information. Some popular options include Experian, Equifax, and TransUnion, among others, such as Azibo. Select a service that complies with the Fair Credit Reporting Act (FCRA).
3. Submit the required information: Once you've selected a service, input the tenant's personal information, such as their full name, address, social security number, and date of birth. Ensure that you've accurately entered all details to get an accurate report.
4. Pay the fee: Most credit check services require a fee. Some landlords absorb this cost, while others pass it on to the prospective tenant.
5. Review the report: Once you receive the credit report, review it carefully. Look for any red flags like late payments, bankruptcies, or a high amount of debt. This will give you a better understanding of the tenant's financial responsibility.
6. Understand the score: Credit scores typically range from 300 to 850. A higher score indicates better creditworthiness. However, consider other factors in the report beyond just the score.
7. Maintain confidentiality: Respect the privacy of your prospective tenant. Do not share their credit report or its information with unauthorized parties. Once you're done, safely dispose of or securely store any printed documents.

How much do credit checks cost?

After discussing the specifics of a credit report and outlining the procedure to conduct one, it's time to address an important question: how much do credit checks usually cost?

The cost can vary widely based on the service provider, the depth of the report, and any additional background checks that might be bundled together. Generally, prices range anywhere from a few dollars to over $50. Some landlords may pass on this fee to the prospective tenant, while others might absorb it as a cost of doing business.

It's also worth noting that some platforms offer bulk or package pricing for landlords who manage multiple properties. By understanding these costs upfront, landlords can decide which services best fit their needs and budget.

Legal obligations when obtaining credit reports

When obtaining a tenant credit report, landlords and property managers are bound by certain legal obligations to ensure fairness, privacy, and adherence to established guidelines. These obligations primarily revolve around consent, disclosure, and non-discrimination.

Consent and authorization

Before accessing a potential tenant's credit report, landlords must first obtain explicit written consent from the rental applicant themselves. This permission is typically sought through a clause or section in the rental application. Without this consent, accessing an individual's credit information would infringe on their privacy rights.

Disclosure and adverse actions

Should a landlord decide not to rent to an individual based on the information in their credit report, they are legally bound to provide an adverse action notice to the applicant. This notice informs the individual of the decision, its reasons, and their rights to dispute any inaccurate information. Furthermore, the landlord must provide the name and contact information of the credit reporting agency, indicating that the agency did not make the decision and cannot explain why the decision was made.

Non-discrimination

The Fair Housing Act prohibits landlords from discriminating against applicants based on race, color, national origin, religion, sex, familial status, or disability. Credit checks must be conducted consistently for all applicants to avoid discrimination. For instance, if a landlord requests a credit report for one applicant, they should do the same for all to maintain fairness and consistency.

Privacy and data protection

Landlords are obligated to protect the personal information of applicants. Any credit reports or confidential data should be stored securely to prevent unauthorized access. If a landlord no longer needs the report, it should be disposed of in a manner that ensures the information cannot be retrieved or misused.

Ultimately, while tenant credit reports are invaluable tools for making informed rental decisions, they come with legal responsibilities. Adherence to these obligations not only protects landlords from potential legal repercussions but also promotes trust and transparency in the landlord-tenant relationship.

What if the tenant has no credit history?

If a tenant has no credit history, it presents a unique scenario for landlords. Having no credit doesn't necessarily equate to irresponsibility or financial instability; it might mean the tenant needs to engage in typical credit-building activities, such as owning a credit card or taking out a loan.

In these cases, landlords should consider alternative methods to gauge the applicant's reliability. For instance, requesting proof of consistent payment for other obligations, like rent from previous residences, utilities, or even regular deposits into a savings account, can be valuable indicators.

Personal references, particularly from past landlords or employers, can also provide insights into the tenant's character and dependability. It's essential to approach these situations with an open mind, understanding that a lack of credit history doesn't automatically disqualify someone from being a reliable tenant.

6 tips for choosing financially secure tenants

1. Know the difference between a great, good, and poor credit score

Credit scores are a valuable financial metric that helps you evaluate a potential tenant's creditworthiness. A score of 580 or less is considered poor, 670–739 is good, and over 800 is excellent. If an applicant has a high credit score, that means they’ve made timely payments in the past. On the other hand, a low credit score shows that a tenant may have a history of defaulting on payment obligations. 

That said, some tenants may not have good credit because they don’t take on debt or use credit cards, but they could still have reliable income and fiscally responsible behaviors. A credit score is a good indicator of financial security, but it doesn’t paint a complete picture and shouldn’t be the only factor landlords review.

2. Identify the amount and type of debts the tenant owes

A large debt load can be a red flag, but not all debt is equal. Pay close attention to the type of debt an applicant carries. For example, high-interest debt is problematic because the renter can quickly become overwhelmed with interest charges. Also, a tendency to rely on credit cards or store financing could indicate bad judgment or poor financial decision-making skills that may impact their ability to pay their rent.

In contrast, student loan debt with a history of on-time payments shouldn’t be a red flag. Additionally, low-interest debt, such as a car payment, is less risky since fewer interest charges accrue and debt payments are more manageable. With low-interest debt, there is also an extra layer of security if a tenant defaults because an asset typically secures these loans.

3. Calculate the rent-to-income ratio

Examining a tenant’s income allows you to gauge whether an applicant can afford your rental unit. To calculate the rent-to-income ratio, divide your rent price by the applicant’s monthly salary. A good rule of thumb is to rent to tenants with a gross income equal to or greater than three times the rent — roughly a 30% rent-to-income ratio. This helps ensure they have enough left over to cover their other expenses.

Landlords may need to adjust their desired rent-to-income ratios depending on the cost of living in their rental property’s market. For example, tenants living in expensive areas like New York City will likely have a higher rent-to-income ratio.

4. Allow potential tenants to have a cosigner

Some renters, like college students, don’t have a good credit score because they’re just starting their financial journey. If you come across an applicant who seems excellent on paper but they don’t quite meet credit or income requirements, letting them use a cosigner or guarantor on the lease can help seal the deal. This will give you peace of mind and ensure that if a renter can’t fulfill their financial obligation, they have someone else who can step in to help.

5. Review proof of income or rent receipts

A tenant’s pay stubs, bank statements, or previous rent receipts will tell you more about their financial situation. Alternatively, you can request a reference letter from their last landlord or current employer. This will give you a better idea of their financial stability and rental history so you can judge the risk level of a prospective tenant.

6. Look out for derogatory marks

To ensure your prospective new tenant is a good fit, verify that they don’t have any derogatory marks in their credit report. Derogatory marks can include past due or collections accounts, bankruptcies, foreclosures, car repossessions, and charge-offs (when an account is closed after 180 days past due).

Rejecting a tenant due to bad credit

Handling the rejection of a tenant due to bad credit requires a delicate and respectful approach, ensuring that both the legal and ethical standards are met.

Firstly, always communicate your decision in a straightforward yet compassionate manner. It's good practice to offer a brief explanation without delving too deeply into personal details. Secondly, provide the applicant with a copy of the credit report or the details of the credit reporting agency, allowing them the opportunity to review and possibly challenge any inaccuracies.

Encourage open communication -- if the tenant believes there's been a mistake or they have extenuating circumstances, be willing to listen. It's also advisable to remind applicants that every rejection is an individual decision based on specific criteria, and it doesn’t reflect their overall worth or character.

By navigating this process with sensitivity and transparency, landlords can maintain professionalism and respect for all parties involved.

How Azibo can help landlords credit check a tenant

Navigating the intricacies of tenant screening can be a daunting task for landlords. Azibo steps in as a comprehensive solution, streamlining the credit check process with efficiency and precision.

By offering a robust online tenant screening platform, Azibo provides landlords with in-depth credit reports, ensuring they have a clear picture of an applicant's financial reliability. This, combined with additional services like criminal history checks and eviction records, equips property owners with all the data they need to make informed rental decisions.

With Azibo's user-friendly interface and commitment to accuracy, landlords can confidently select prospective tenants who align with their property's standards and values.

Making the right choice: Run a credit check on a tenant with confidence

In property rentals, an informed decision can be the thin line between success and hardship. Tenant credit reports offer that much-needed clarity, ensuring you’re not left in the dark about who you're renting to.

But why stop there? With Azibo's tenant application and screening reports and tools, you're not just getting a peek into a tenant's financial past; you're getting a comprehensive view of their rental history, criminal background, and so much more.

Don't leave your property's future to chance. Opt for Azibo today, and make every tenant choice a confident one. Try Azibo's tenant screening tools now!

Tenant's credit report FAQs

How do I get a credit score for a tenant?

Acquiring a credit score for a prospective tenant is an integral part of the tenant screening process. First and foremost, it's essential to obtain the tenant's written permission to ensure you're compliant with the Fair Credit Reporting Act.

After gaining consent, landlords can use tenant screening services that offer tenant credit reports. These services have been crafted with landlords and property managers in mind.

Once you input the required tenant details, such as their full name and Social Security Number or Individual Taxpayer Identification Number, you'll swiftly receive the tenant's credit report. This report not only shows the credit score but also offers a detailed view of their credit history, including any timely or late payments and other relevant financial behavior.

What background check do most landlords use?

Background checks for potential tenants are multifaceted and require pulling information from multiple sources. Most landlords focus their efforts on acquiring a credit check, which offers insights into the tenant's credit history and overall financial reliability.

Background checks also typically look at criminal records, ensuring the prospective tenant has no alarming criminal convictions.

Furthermore, landlords often seek a rental history report. This document can provide insights into the applicant's past behavior in previous rentals, highlighting any red flags like evictions or disputes. Some landlords also deem it necessary to verify the tenant's employment, ensuring they have a steady income stream to cover rent payments.

Lastly, contacting references, especially past landlords or property managers, can offer an in-depth view of the tenant's behavior and reliability in past rental scenarios.