“Check My Credit Report? How To Answer Tenants” written by Mike Marko
Do you find it difficult to answer when prospective tenants ask, “Why do you have to check my credit report?”
Well, you can’t blame them if they ask you.
Credit reports contain confidential information, and most of its details are highly personal. However, doing a credit check is vital to your screening process, as there will be a higher risk of having tenants who might cause harm or destruction to the property if you don’t screen them properly.
If you have no idea or are not sure about what to answer when tenants ask you the question, then you better be prepared for it as early as now.
In this article, we’ll talk about the points you may discuss when your prospective tenants ask, “Why would you check my credit report?”
Answering Tenants Asking “Why Check My Credit Report?”
As a property manager, you are responsible for screening all tenants before leasing the property. This helps you lessen the risk of renting the building to a bad tenant or someone who has not shown the financial responsibilities to pay rents consistently or on time.
With that, knowing how to answer tenants who are skeptical about having their credit checked is essential. Letting them know the process may help assure them that you’ll only use their credit report information to determine their qualifications for renting the property.
Whether you will go into detail or simply give them an overview, you should be mindful of these key points in answering your tenants’ question: “Why you have to check my credit report?”
What is a Credit Report?
In a nutshell, a credit report is a collection of historical information about a person’s financial history and how they handle debt. It includes their identification data such as name and address, as well as credit card details and loans. Additionally, a credit report rates each individual on their abilities to pay responsibilities and if they are able to pay their bills on time
A person’s financial information and history as to how they paid their bills over time are annexed into an individual’s credit report, Individuals personal financial histories, just like companies, are shared and sent to the credit bureaus. The credit bureaus will be the one who’ll update, compile and maintain credit reports and individuals financial histories.
Inform the Tenants of the Importance of Credit Reports
During the rental application process, you develop a tenant screening process that helps you determine the best renters and those who have shown over history to pay rents on time. Running a credit report as part of the tenant screening process allows you to review a tenant’s financial history and if they have been a good tenant in the past. However, to run a credit report on an applicant you must have the properly signed authorization allowing you to do so. Let the tenant understand that checking their credit report is an integral part of a thorough screening process. It will secure the property and other tenants from ill-intentioned individuals by verifying the identity of new tenants and weeding out criminals.
Reviewing your tenants’ credit reports will help you determine if they have the capacity to pay the rent on top of their other monthly obligations as per their income. Additionally, a credit report lets you see how they handled their financial obligations in the past. This will give you a reasonable idea of what type of tenant they are and whether they pay on time or not.
Normally if a tenant is unwilling to allow you to run their credit report they most likely have some bad or unwanted information that they don’t want to disclose to you. In these cases, you can make refusal to run a credit report as a disqualifying reason to rent the property to that individual.
Let Your Tenants Know the Credit Check Process
Letting the tenant be aware of the credit check process may help reassure them that you will only be using their credit report to qualify or not qualify for rental of the property, especially if they start asking, “Why check my credit report?”.
As the property manager, it is in your best interest for you to personally take care of most of the work on a credit check process. This includes the gathering of requirements and evaluation of your compiled data. Having a detailed system as to how they will be evaluated and what is done with the credit report after it is run is key to answering their questions that could arise.
Also, let them know you follow a solid and consistent screening process. This way, your tenants are assured that there is no discrimination among them. When you have a consistent screening process this is also in compliance with Fair Housing Laws.
Compilation of All Needed Requirements
The first requirement to running a credit report on a prospective tenant is having them sign an approval allowing you to run their credit for rental qualification. It is best to develop a separate form aside from the rental application to get this approval. Consult with your real estate attorney to make sure the form you use is compliant with local rental laws and privacy laws.
To order the tenant’s credit report, you will have to ask for their identifying information. This includes their complete name, address, date of birth, social security number and place of employment. When gathering this information you should also get copies of their ID card or Driver’s Licence to help in verifying their identity.
The information you are requesting is most likely on their rental application, but for transparency purposes, it is still best to ask them directly for these documents. You also have to get their authorization to allow you to run a credit check as part of their screening process. Having a signed authorization with all the required documents allows you to start the credit report process…
Credit Check Procedure
After compiling all the requirements you need, you will have to coordinate with a credit reporting agency or tenant screening service. The best agencies to use are the 3 main credit reporting bureaus to avoid any issues with identity theft or using a service that is not as secure as these credit bureaus. When you make the credit report from the three major credit bureaus: Equifax, Experian, and the TransUnion you have more of a sense of security that other online agencies lack.
Normally you will receive the credit report on the same day or within minutes of when you requested it. Once you get the credit report, you will now have access to the tenant’s credit score and detailed financial summary.
Credit scores are three-digit numbers that determine whether they have positive or negative financial history. To get an idea, a low credit score is around 300 to 619 while a good score ranges from 680 to 800. Other financial history and reports will also be contained in the credit report. Your property management company can determine what areas are best to use the credit report to evaluate. Often the credit report will detail evictions or unpaid judgments in rental situations. Whatever is revealed on the credit report it is best to review completely in detail with the applicant to avoid any misunderstandings or interpretations of data that may occur…
How Property Managers Should Evaluate the Credit Report
Getting the credit report in final form is just part of the process. The more important part of the process is being able to evaluate and determine if the person applying for the rental is someone you want to rent the property to.
When checking the credit report there are two main parts you must look into for your screening and evaluation process:
- Credit score,
- Financial summary.
Of course, you should also set your own standards before interpreting the report. Often times it is best to review the report with the applicant so they can detail any personal issues that may have affected scores or financial history of unpaid debts. Sometimes you may overlook a bad stretch of negative financial reporting because the applicant was able to explain why that occurred and you are willing to give them a chance of renting your property.
In addition to the Score and financial history, you should also weigh the demand for the property and risk tolerances of the property when screening tenants.
For instance, if you have a high property demand, you can be pickier and only go with applicants that have high credit scores and no bad debt reporting. But if the market is low or the property you are renting is difficult to rent because of some other factor, you may take in a few considerations regarding the prospective tenant’s credit report.
Looking Beyond the Credit Score
As mentioned, the tenant’s credit score establishes whether he or she is financially stable. However, this should not be the only basis for your evaluation. There may be circumstances when a person who is financially responsible can have a low credit score.
An example is if they lost their job during a recession. Even if they have found a new job and settled all their payments, it may not yet be reflected on their credit scores. With that, you have to gather more information regarding the tenant’s fiscal status. Often times it is the review and meeting with the applicant that will ultimately determine if you are going to rent the property to them or not…
Viewing the Public Section and Financial Summary
Reading through their financial summary is a good place to learn more about the financial status of the prospective tenant. You may look at the public section of the report to see if they have filed bankruptcy, eviction or foreclosure.
This will also help you see if they can pay the monthly rent. Aside from their income, it’s vital to review other monthly payments such as credit cards, student loans, and more.
Other major information in the summary includes the tenants’ open accounts, mortgage items, debt to income ratios, and closed accounts with outstanding balances. This can help you evaluate the tenant’s financial habits.
Assessing of Bad Behavior
Bad behavior is a red flag in looking for a quality tenant. Through the credit report, you will know if the tenant has a criminal history or prior eviction. But even though the tenant has a criminal record, it doesn’t mean you have to automatically decline their application.
Instead, you can use the report to see important variables to help you with your assessment. Examples are:
- Frequency – misdeeds committed more than a few times are significant warnings compared to a single incident,
- Severity – crimes that involve violence or theft are red flags,
- Relevance – cases such as assault, shoplifting, theft, vandalism, possession of unauthorized weapons, and trespassing are relevant to property rentals
- Recency – recent offenses are more relevant than old ones,
- Legal considerations – criminal sentences that have legal restrictions may not be legally allowed in the property.
Regarding how you evaluate the tenant’s credit report, it’s up to you how much you’re willing to divulge. You may give them an in-depth explanation or a simple overview as long as you communicate with them transparently. Either way, doing it will help answer their question, “Why check my credit report?”.
Final Thoughts on Informing Tenants on Checking Credit Report
In this blog post, we tackled the key points you may address when your prospective tenants question you, “Why check my credit report?”
Knowing the essentials of the whole process will help you explain and enlighten the tenant in trusting you with their credit report.
You must also remember the confidentiality of the information. Their credit report must only be used to assess the tenants in accepting or declining their application.
Please comment below if you have any questions.
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