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How to Run a Credit Check on a Tenant: A Comprehensive Guide for Property Management & Landlords

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CRS Credit Experts

April 30, 2024

Tenant screening is a crucial part of managing your property portfolio. According to the National Multifamily Housing Council, a trade association for the apartment industry, only about eight out of 10 tenants pay their rent on time. Commercial and residential landlords alike should take the time and effort to conduct thorough credit screening, which can help avoid the hassle of late rental payments. 

Here’s how to screen tenants, what to do with the information on a tenant’s credit report, and some best practices to follow as you screen potential tenants for your rental properties. 

What is tenant screening?

Tenant screening is a process that involves pulling information on a possible tenant to assess their suitability for a rental property. Landlords and property managers can use tenant screening to make better decisions about who to rent to as well as how much to charge for a security deposit. Tenant screening also typically involves a credit check to ensure the applicant is able to make their monthly payments. 

Tenant screening typically involves three pieces of information: 

  1. A tenant’s identity and rental history. Property managers should verify employment information (for consumers), income (or revenue for commercial tenants), and previous rental history to ensure the prospective tenant can afford their rent, pays on time and takes care of their space. 
  2. A credit check. Landlords should pull a credit report to get more information on the tenant’s credit history, credit score, and outstanding debts. 
  3. A criminal background check. Criminal public records and eviction reports can help landlords understand a potential tenant’s criminal history and help ensure compliance with fair housing laws. 

Ultimately, tenant screening helps landlords manage financial and reputational risk by getting more comprehensive information about a potential tenant before signing a lease agreement. 

Tenant credit reports are typically the most important factor in the tenant screening process. These reports are considered “consumer reports,” and therefore governed by the Fair Credit Reporting Act (FCRA). The Federal Trade Commission (FTC) enforces the FCRA. “You can only get a consumer report if you have a permissible purpose. Landlords may get consumer reports on applicants and tenants who apply to rent housing or renew a lease,” stated the FCRA

Tenant credit checks range in price but are usually around $25 to $75 per applicant, depending on the information you request. Who pays that fee depends on the state in which you are operating; in some states, you can request that prospective tenants pay an application fee, or you can pay for the report yourself.  

Should you accept a tenant-provided credit report?

When a tenant is applying for a few different properties, they may want to avoid paying the fee multiple times over. Note that federal law does not require you to accept a copy of a tenant-provided credit report. 

However, certain states have rules in place that may differ. For instance, Wisconsin forbids landlords from charging for a credit report if, before the landlord asks for a report, the applicant offers one from a consumer reporting agency and the report is less than 30 days old. 

If a tenant refuses to provide permission for a credit check, you should consult with an attorney to see what your options are. You should ensure that you comply with state-specific laws governing tenant credit checks before denying their application. 

How to run a credit check on a tenant

Most landlords include a permission form with the rental application that enables them to process a credit check for their prospective tenant. Here’s how to do a credit check on a tenant as part of your screening process. 

Get the information you need to run a credit check 

The main information you need to run a credit check on non-commercial tenants is as follows. 

  • The applicant’s full legal name
  • Address history for at least two previous addresses
  • Social security number
  • Employer name
  • Former landlord name
  • Date of birth
  • Express permission to run a credit check

For commercial tenants, you need similar information, including: 

  • The legal business name 
  • Tax Identification Number (TIN), which is either the business’s Employer Identification Number (EIN) or a Social Security Number (SSN) for sole proprietorships.
  • The business address (physical location and mailing address)
  • A contact person
  • Express permission to run a credit check

You should also gather the information needed to verify your business credentials. The FCRA requires that you have a “permissible purpose” to request a tenant’s credit report. Therefore, you need to submit information verifying that you are an actual landlord who is using the report to check on a potential tenant. Most companies will ask you to provide

  • A document verifying your current address (telephone bill or similar).
  • Proof of identification (driver’s license or passport).
  • Proof that you own the rental property (deed, insurance document, mortgage statement, proof of title, utility bills, purchase agreement).

Apply for a tenant credit report

Property managers can get a tenant’s credit report directly from any of the three credit bureaus (TransUnion, Experian, or Equifax). Each bureau charges different fees and provides its own scoring model. 

Alternately, third-party partners like CRS offer the shortest, quickest, and least expensive path to the tenant credit information you need. CRS’s API allows you to perform a soft-pull credit report from Equifax and hard inquiry reports from the other two bureaus from within your property management software or CRM (customer relationship management) program. Our API also provides access to useful background check information, such as the tenant’s criminal records. 

Analyze the information 

What should you look for in a tenant credit report? Credit score, payment history, and credit utilization are a few data points that can help you make a decision about their rental application. Let’s dive into the ins and outs of using the information on the credit report to make better leasing decisions. 

The ins and outs of using a tenant’s credit report

Once you have a tenant’s credit report, you need to understand how to use it. Several factors contribute to a tenant’s credit score. Payment history is the most significant factor: the more on-time payments that a person makes, the better their credit score. A report will also show you “amounts owed”, which is the percentage of available credit that a tenant is using. A high utilization ratio (above 50%) can lower the score, suggesting financial strain.

Also consider the length of someone’s credit history and their credit mix. Someone with a longer credit history gives you more credible data to work from — typically resulting in a higher score. A diverse mix of credit, such as student loans, credit cards, and car loans, can also improve their credit score. 

What should you do if someone has no credit history? Some landlords will ask for more information before signing a lease with those tenants. You could ask for previous rental references, proof of income, or a higher security deposit, for instance. 

If someone has bad credit, the FTC has explicit rules regarding “adverse action” — meaning you can’t outright reject their application based on their credit score. Check the FTC’s guidelines to understand your full obligations regarding how to screen tenants. 

How to screen tenants with CRS 

There are other reports that you should leverage beyond a credit score. CRS customers can also access important background screening data through CIC criminal reports and CIC eviction reports. There is also the option to request additional lien and judgment reports and KYC solutions to combat the risk of fraud. 

CRS’s all-in-one credit, fraud, and compliance solution is uniquely equipped to help landlords comply with FCRA guidelines and make better business decisions. Learn more about our platform.

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