What you need to know when running a tenant credit check

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As a property owner and a landlord, checking your prospective tenant’s credit is important not just to gauge their capability to pay, but more importantly, a good way to protect your investment. We all know the saying “don’t judge the book by its cover”, and as a business owner, you should be objective in accepting tenants.

What’s in a tenant credit check?

Tenant credit check includes the identifying information of the prospective tenant, the name, current address and past addresses, birth date, employers, spouses and their Social Security Number. It also includes credit history such as credit card limit, payment pattern; public records which includes tax liens, bankruptcies, reported evictions and inquiries, which shows the names of people who have requested credit report on that person for the past year.

Obviously, if a tenant has a good credit history and pays bills on time, chances are, he or she will pay the rent on time as well. Of course, you should keep in mind that tenant credit checks are not foolproof.

So what should you look for in a tenant credit check?

As soon as you have the credit report in your hands, your next task is to read the report and understand how the prospective tenant pitches to deserve your rental space. Check the chronic late payments, bankruptcies, unpaid accounts, eviction history (if included) or judgment against.

The report may show tenants paying his dues on time. However, you should also look at how much debt they have. If the majority of his/her income per month is already committed for the bills and debts, he/she may have difficulty paying the rent on time.

 

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Credit Rating (Photo credit: Match Financial)

 

If the report is good…

If credit report shows good scores, then that’s good news. Your potential tenant has the capability to pay the rental property responsibility on time. However, it is important that you don’t get lackadaisical, as credit reports aren’t 100% foolproof. There are tons of scammers everywhere and professional tenants know exactly how to falsify their credit report information. Thus, it is important that you all the security deposit first before accepting the tenant.

If the report is bad…

If there are areas in the credit report that concerns you, then your next step is to ask your prospective tenant about it. Often times, credit reports make mistakes, and as said earlier, they are not foolproof, as they may not be aware of those bad reports about them. Also, many times, good people fall into having bad reports for different unfortunate reasons, which typically blemishes their track record and attitude towards financial responsibility.

It never hurts to give them a chance to explain their case and consider their side of the story.

Bottom Line

At the end of the day, the decision is still in your hands. Credit reports are just there to help you, you still need to decide it for yourself.

Also, you are always allowed by ask for additional security deposit or co-signers, should you decide to accept questionable clients as long as you provide the prospective tenant with “Adverse Action” letter explaining how their bad credit influenced your decision.

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