How to Spot Red Flags in a Tenant Credit Report

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With rising eviction rates in many cities the dream of being a landlord can quickly turn into a nightmare. One way to curtail the rising tide of costly and time consuming eviction processes is for the landlord to obtain a credit report for any potential tenant. The tenant credit report provides the landlord with invaluable resources to make the best decision possible in selecting tenants. Interpreting of the available information is critical in the process of leasing any property.

The information a landlord can find on a typical tenant credit report includes previous and current addresses as well as employment history. The report also provides payment histories on installment and revolving credit accounts. Public records are also furnished which details any tax liens, bankruptcies, or previous evictions. A debt to income ratio is also provided by many of the companies that provide tenant credit reports. The landlord can work from a position of knowledge and confidence with this information.

Once armed with the information provided by the tenant credit report the landlord can begin to interpret the data to make a sound decision based on facts. For instance, the prospective tenant’s history of previous addresses gives the landlord and idea of how reliable the tenant might be. If a tenant has moved six times in 36 months then the odds of a lease being fulfilled are slim to none. The employment history is also an invaluable resource to determine if the potential tenant is responsible.

A tenant with a short term job history or gaps in job history can suggest an unstable source income which would indicate a risk of slow lease payments. The landlord can use the potential tenant’s payment history on credit accounts to determine if the tenant is reputable. If there are late payments and missed payments the landlord should take that as evidence of a potentially high risk tenant. Red flags should also be raised with the presence of bankruptcy or previous evictions on the credit report.

Interpretation of the debt to income ratio is also critical. For example, if a potential tenant has $2500.00 in monthly income and $1500.00 in credit obligations like car loans or credit cards and the lease payment is $750.00, then the risk is very high that the landlord will receive slow or missed lease payments. Slow and missed lease payments could very possibly result in the landlords own financial troubles up to and including foreclosure and loss of property.

Considering the risk, the landlord must insist on each potential tenant to submit to a tenant credit report prior to signing any lease. The search for a reputable, responsible, and reliable tenant may seem like a hassle or inconvenience. However, the trouble the landlord could avoid by careful interpretation of the prospective tenant’s credit report makes the hassle worth the time involved. The landlord must have the mindset to reduce the risk being taken. In this case, knowledge is power and safety. Know the risk, pay attention to the information found in the tenant credit report.

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