Why It Is Important To Check Credit Report?

“Why It Is Important To Check Credit Report?” written by Mike Marko

Are you wondering why you need a check credit report when sorting through tenants that want to rent your property?

Knowing who to rent a property to can be a challenge… and there’s quite a bit of pressure.  Making the wrong decision can cost you $100’s if not $1000’s (or even $10,000’s).  That’s why it’s important to do your due diligence in the tenant screening process.

So can a check credit report help make sure you have a good tenant when you are screening?

Let me take some time today to talk to you about whether you should use a check credit report, and how you can do it.

Learn More From The Tenant Credit Report

So you are about to screen a tenant for one of your rental properties.  Should you use a check credit report in the screening process?  Let’s dive into that for a minute…

Reasons Why You Need To Check Credit Report

Lost rents, unpaid rents, bad financial history can lead to losses and damages at the properties you are renting. To avoid these issues it is best to know as much as possible about the person(s) you will be renting your properties to. Considering these negative and financial reasons is the main reasons why you should check credit reports on all possible tenants. Being as complete as possible during the rental tenant screening process will help you in improving your rental property business, the safety of your property, and the quality of the tenants depends on your decisions.

Below are reasons you should order a credit report on every applying tenant for your property:

  • It’s free. Ordering a credit report may cost you some money, but it’s legal to charge the applicant for the cost of the tenant screening services. Since the applying tenant is paying for the report-it is essentially free for your purposes.
  • It’s useful in picking the right tenants. Usually, bad tenants are those who are having financial issues. The frustration on an individual’s problems with money could affect their behavior and cause lost rents, late rents or unpaid rents due to their lackluster financial history of paying their bills.  A check credit report can help you gage their financial status.
  • It can be used to identify if an individual is a victim of identity theft. Any errors on a credit report could possibly be a result of an identity theft. When you find discrepancies on any report during the tenant screening process this can lead to discovering that the applying tenant is engaged in identity theft to rent your property.
  • It can be used to verify information. Aside from any personal references or rental verifications, credit reports could also be used in verifying the applicant’s identity, bank statements, public records, and other financial histories.

Make Sure To Check Credit Report Of Every Tenant

As a property manager, your main goal when renting a property is to find the most reliable and qualified tenants or renters for that property. The main reason to find the most qualified renters is to avoid losses in unpaid rent, property damage and other illegal activities could take place in your rental units.

In reviewing renters applications, it normally takes time to find the right tenants for your rental property business. The best way to avoid unqualified tenants with bad habits and behaviors is by conducting a tenant screening process that uncovers these behaviors.

The most complete tenant screening process includes these reports:

  • standard credit report
  • credit score or credit rating (A-F, for example)
  • criminal background check
  • sex offender background check
  • unlawful detainer and eviction history
  • employment verification
  • OFAC terrorist search

Every report is important in finding the most qualified renters for your property. However you may have noticed, the first item on the tenant screening list is a credit report.  One of the biggest problems for property managers are the tenants who are not paying their monthly payments regularly.

By checking a credit report, every financial activity and history of how the individual has paid their bills and conducted their financial history is reported in detail. The negative and positive items on the credit report could easily tell you if the applicant has the capabilities of being a good tenant.  It tells you if they have a history of paying their financial obligations on time or are regularly defaulting on them.

Things You Need Before Ordering A Credit Report

The credit report is part of the application process. Since there are many items to be reviewed and verified it is best to be prepared prior to order a credit report. Before you can order a credit report, you should have these documents and authorizations signed by the prospective tenant:

  • Completed rental application
  • Written consent for a credit check
  • Screening fee

Steps In Checking Credit Report

After you have requested and obtained the credit report, now the time is to verify and make use of all the new information you have on the applying tenant. The credit report is the most reliable way of checking the financial history and payment history of your possible tenant. Thus, in my opinion, the credit report is the most important part of the tenant screening process on possible tenants.

Here is a step-by-step guide in checking the applicant’s credit report.

  • Before the prospective tenant starts the rental application, inform them first about the tenant screening process.  A written document or any proof of the agreement should be signed and kept by your office to avoid legal actions.
  • Once the prospective tenant was informed about the process of screening tenants for your property, give them a rental application form. The application form will give you the applicant’s name, current address and telephone number, and any previous addresses in recent years. Other personal information about the tenant such as social security number and driver’s license number will also be included.
  • Verify the applicant’s identity, ask for any photo I.D. You can also ask for information on the applicant’s social media accounts. This will help you in verifying most of the basic information on their rental application form.
  • Use Experian, TransUnion, and Equifax in ordering the credit report. These three major credit bureaus have the best and most complete financial history for the applicant and will give different credit report and score. The credit report again is helpful in verifying the applicant’s identity by discussing and verifying information obtained on the credit report.
  • Once you have the credit reports, look for collections, defaults, evictions, charge-offs, bankruptcy or judgments. These notes are considered as red flags, and any individual with these records could possibly a bad tenant and be prone to unpaid rents and late rent payments.

According to the law, it is legal to charge the cost of the screening reports to the applicants.

So how exactly is the credit reports organized?

Credit reports are divided into four sections, the first section includes the basic information such as name, address, and contact information. The second and third section includes credit activities, history, public records, and inquiries. The last section is a summary tab for detailed information and F.I.C.O. Scores and other pertinent financial information.

The first section of the credit reports could help you in verifying the applicant’s identity, while the remaining sections can be used in evaluating financial status. Understanding and knowing how an applying tenant pays their bills is possibly the most important part of the tenant screening process.

Additional Tips

The credit report gives detailed and excellent information on the tenant and their financial history. I would suggest using this information to contact the applicant’s employers and previous landlords. Credit reports give more accurate information on the tenant than the normal application form since the information is compiled by an outside uninvolved agency. It’s best to when possible to never use the provided contact information on the rental application form. It is easy to put fake numbers for earnings and employers and verifying that information with an outside source helps to avoid fraud.

Final Thoughts On Why It Is Important To Check Credit Report

Today we talked about why you should check credit report during the tenant screening process.  We also covered the key steps in the check credit report process.

Whether you check credit report or not as part of your tenant screening process, it’s still a challenge making sure you rent to good tenants that will take care of the property.  The only thing you can control is your due diligence in the screening process.

Good luck!




Suggested Articles:
1. How To Check Background For Property Managers
2. Understanding A Credit Rating Of Potential Tenants
3. The 5 Main Responsibilities Of Real Estate Management Companies

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Disclaimer: This commentary is a matter of opinion provided for general information purposes only and is not intended to be taken as investment or trading advice under any circumstances. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses any person may incur as a result of this analysis. Individuals should consult with their personal financial advisers. By using this website or any information contained in it, the user specifically and expressly agrees that no advisor-client relationship is created between said user and any author, owner, executive, or principal of this web site by either use of this web site, or by any information, product, or service offered by or on this web site. No express or implied guarantees or warranties as to investment or trading results are made, and any perceived insinuations of such are hereby expressly disclaimed.


Article: Why It Is Important To Check Credit Report?

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