Managing rental property is no easy task. Why make it harder than it already is? After all, your properties are only as easy to manage as the tenants who live in them. Employing best practices consistently on each and every rental is the key to managing income property smoothly—and avoiding discrimination issues, too. One way to avoid trouble is to check potential tenants’ credit and criminal history.
Is it Legal to Check a Tenant’s Credit History?
Absolutely. Renting property brings monetary and legal risks to the property owner. You need to mitigate risk wherever you can, and checking credit history is a great way to do so. As part of the rental application, your prospective tenant can agree to a credit check with a signature. You’ll know for sure if the applicant is a good risk—or one to stay away from. Even a tenant with a great credit history can miss paying rent on time—but again, the idea is to lessen that risk by choosing the best possible tenant.
Remember that all information you learn from a credit report must be held in strictest confidence, and never shared with third parties. Your applicant may have a right to the report—check your state’s guidelines and the Fair Credit Reporting Act (FCRA) to be sure you are compliant. If you reject an applicant for credit reasons, you must advise them in writing. Consider having a reputable, professional tenant screening service handle your background screening to ensure you are within the guidelines of the FCRA.
What Will a Tenant Screening Credit Check Tell Me?
The credit check will reveal how promptly the applicant pays credit cards and loans, plus any outstanding judgments or bankruptcy filings. Look for a good record of responsible finances, and see if the applicant appears to be living beyond their means. Conservative spenders will be more likely to survive an emergency or job loss without major upheaval—like breaking your lease agreement.
The credit check will also reveal previous addresses—compare these with the application and investigate any inconsistencies. There could be a simple explanation—or the prospective tenant could be hiding something.
While you don’t have a legal duty or obligation to do so, you may certainly include criminal history in your tenant screening process. Keeping your property, other tenants, and yourself safe from potential damage is well worth it. These reports typically cover records at the county or national level; different reports are available in different states. Check with a professional tenant screening company for details.
The important thing to remember is to be consistent: screen all applicants in the same way, each time. Making an exception could be reinterpreted as discriminatory—and it could literally open your doors to potential problem tenants. A clear policy of running criminal background checks on all applicants is the best protection for you, your other tenants, and the community.
You can increase your assurance of FCRA compliance by using tenant screening services from E-Renter USA.
How Do I Qualify to Receive Credit Reports?
Each of the three national credit bureaus have slightly different requirements for qualification to receive credit reports on tenant applicants, but the essential elements are similar.
Any company who wants to continue to receive applicants’ actual credit reports and FICO scores must have an inspection of the office where those reports are accessed and stored. Each of the credit bureaus requires that inspection be performed by an approved third party. The details of the inspection can be provided by the company who will be performing the inspection, but include proper security of files and verification of the type of business being conducted at that location.
Additionally, it is now required that customers requesting credit reports provide identification and proof of property ownership.
Anyone who wants to view credit information (including landlords and employers) must have written consent of the individual.
In addition to credit information, other related laws prevent medical information from being given to anyone without written consent of the individual.
Additionally, not just anyone is allowed to receive information, even with your consent. If you apply for credit, employment, insurance, or to rent an apartment, you will generally be asked to give consent for information to be released.