A thorough screening is one of the most critical steps to being a successful landlord since it helps minimize risk. Landlords use rental credit checks along with reports on income, criminal background, evictions, and rental history to find quality renters. When checking a potential renter’s credit, some landlords only look at an applicant’s overall credit score, while others look at the specific details in the report. The credit score, be it overall or specific, shows the landlord how responsible a potential renter is with their credit accounts.
What is a rental credit check?
A rental credit check is a summary report with data from one or more of the three major credit bureaus. The data in the credit report comes from the potential renter’s creditors, like banks, credit card companies, or other finance companies. The report also includes data from public records, such as court or property records. Each of the three credit bureaus gets their data from different sources, so, although there is some overlap, the information may differ from one credit report to another credit report. Most rental credit checks include:
- Credit score
- Mortgages
- Student loans
- Auto loans
- Open lines of credit
- Outstanding balances
- Foreclosures
- Late or missed payments
- Bankruptcies
- Collection accounts
How to run a rental credit check
Landlords seeking credit information about potential renters must comply with the Fair Credit Reporting Act (FCRA). Credit reporting agencies will accredit landlords to ensure their records are secure, they have a valid reason to request credit data, and their business is legitimate. Another option for landlords is to use an online renter screening tool, like the one Zumper provides.
Why is a rental credit check important?
A rental credit check is important because it shows how potential renters have handled their credit accounts, it outlines their debt-to-income ratio, and it helps landlords to identify any red flags. A higher credit card score means a potential renter has a positive financial history and has paid their bills on time, so they are likely to pay their rent promptly. Often, a lower credit score indicates a negative financial history and suggests you need to do further research to assess a renter’s suitability.
So, if a potential renter has a poor credit score, the landlord can still look deeper into the situation before denying the renter’s application by:
- Asking the potential renter for the story behind their poor score to determine if there are reasons for concern.
- Verifying the potential renter’s income to see if their salary is high enough to make up for the poor credit history.
- Using a rental history report to check if the potential renter has had any evictions or failed to pay their rent in the past.
What if a renter doesn’t have a credit history?
Sometimes landlords will have a potential renter who doesn’t have any credit history. This typically happens with young adults, like college students, who haven’t established a credit file. However, it’s also possible the potential renter doesn’t have a credit report because of poor employment history, because the landlord accidentally entered the wrong information, or because the potential renter provided inaccurate information. When an applicant doesn’t have credit, you can:
- Ask for alternate documentation — such as pay stubs, bank statements, or employer references — to establish income.
- Ask to see the potential renter’s photo ID to verify their key details, including name, birthday, and address.
- Ask the potential renter for an explanation to help determine why they don’t have a credit score.
- Lease to the potential renter on monthly or short-term to assess their promptness in paying the rent.
How to check a rental credit report
Once you receive the rental credit report, there are several ways you can use the information. Here are some steps you can take to verify and screen a potential renter based on their credit history:
Prescreen potential renters
Before a potential renter fills out a rental application and gives you permission to run a credit report, ask them basic questions as part of a prescreening process. For example, if the property doesn’t allow pets, ask them if they have pets. If renters can’t have a felony, let them know and inform them a criminal background check is part of the application. Checking a potential renter’s social media accounts can give you insight into their behaviors and employment history.
Run a credit check
Suppose the potential renter passes your prescreening questions and returns a completed application. In that case, you can run the credit report along with all the other reports, like criminal background and rental history. Some state laws require the landlord to pay for the cost of a credit check, while other states allow the landlord to charge the applicant. The credit report should include seven to 10 years of credit history.
Examine the credit report
If you’re only concerned with the overall credit score, reading and analyzing the potential renter’s credit report should be fairly simple. Once you know the applicant’s credit score, you can determine if it’s acceptable or not. If not, you may want to consider all the other information you’ve gathered on the potential renter to see if they are still a good fit for your rental property.
If you want to look at the potential renter’s credit report in more detail, there are some things you can look for. See if the applicant has a history of late payments. Although a couple of late payments isn’t necessarily bad, serious delinquencies are a red flag. Compare the potential renter’s income to their debt. If the applicant has large loans, maxed out credit cards, and unpaid balances, they might not be able to afford the rental property payments.
Make a decision
Using the information from the rental credit check, other reports, and your rental requirements, you can decide about the potential renter. Ultimately, you know your rental property best and you know the type of renters who are a good match for your property.
Choosing an online renter screening tool that you can trust to provide reliable information is an important part of the entire applicant screening process. Zumper’s online screening tool is easy to use, is trustworthy, and provides valuable information for choosing quality renters for your rental property.
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