“Conducting Credit Check Using Credit Reporting Bureaus” written by Mike Marko
Choosing tenants isn’t easy.
Property managers often have problems with tenants who can’t pay their rent regularly. Late payments can negatively affect the rental property business.
The only way to avoid this is by conducting a credit check on potential tenants. To conduct a credit check, you need to contact the credit reporting bureaus.
They’ll get the necessary information and compile it in a document called a credit report.
But before you start ordering a credit report, make sure that you’re getting it from one of the licensed credit reporting bureaus.
Are you wondering why credit checks are done with licensed credit reporting bureaus? Let’s answer that in this blog post.
Today, I’ll talk about conducting credit checks with credit reporting bureaus.
Things to Know About Credit Reporting Bureaus
Credit checks are done through the help of credit reporting bureaus.
A credit check is a complex process requiring the compilation of a lot of information.
Quite a bit of that information can be sensitive — and not everyone can access it.
That’s why you need help from credit reporting bureaus to do one. Credit reporting bureaus are permitted to collect that sort of information and also have the means to compile it into an organized document.
But before we talk more about why it’s better to get assistance for credit reporting, let’s talk about the credit check first.
What Is a Credit Check?
A credit check is part of the tenant screening process. This is a process intended to help you distinguish the bad prospective tenants from the good ones.
Now a credit check can’t tell the moral character of a tenant. However, it can give an insight into their financial situation.
It can tell you if they have outstanding debts at the moment, for instance. It can also tell you how they’ve dealt with bill payments and similar duties in the past.
All of this information is intended to give you an idea of how a prospective tenant handles his money and obligations.
The result of the credit check will be compiled in a document called the credit report. It contains various information about the tenant’s financial activities.
The Data in a Credit Report
A credit report from the credit reporting bureaus usually contains the following:
- Identifying Information – These are the name, address, social security number, date of birth and employment information of the tenant.
- Trade Lines – These are the tenant’s credit accounts. Credit reporting bureaus typically include info here such as the type of account, credit limit or loan amount, and account balance.
- Credit Inquiries – The inquiries section contains a list of everyone who accessed the credit report of the tenant within the last two years.
- Public Record and Collection – Public record information includes bankruptcies, foreclosures, suits, wage garnishment, and liens.
Property managers use the credit check to know if the tenant can pay rent regularly.
The Rental Application Form and Tenant Approval for a Check
But before conducting a credit check, the tenant needs to fill a rental application form first. The application form will get tenant’s the information and approval for the credit check.
A property manager can’t conduct a credit check without the tenant’s approval. That’s why a rental application also informs the tenant about the tenant screening process.
The rental application form will get the necessary information about the tenant such as:
- Full name,
- Social security number,
- Previous address, and
- Landlord contact information.
Credit reporting bureaus need the information above in order to get the credit report of the right person.
It’s perfectly possible that someone has the same name as your prospective tenant, after all. But for them to also have the same birthdate and social security number?
That would be highly unlikely, and thus helps credit reporting bureaus make the distinction between individuals with the same legal name.
That’s important, as they don’t want to get financial records mixed up.
Who Are the Credit Reporting Bureaus?
The credit reporting bureaus are also called credit reporting agencies. They’re legally allowed to pull the credit information of a person and sell it in the form of a credit report.
Take note that credit reporting bureaus aren’t necessarily government bodies. In fact, the vast majority of them aren’t.
They’re generally for-profit businesses that simply happen to aggregate consumers’ financial data for reporting.
Credit reporting bureaus and their information sources are also regulated by 2 actual government agencies in the US.
One of those government bodies is the Federal Trade Commission. The other is The Office of the Comptroller of the Currency.
At any rate, there are many credit reporting bureaus in the United States. However, property managers often prefer to use the services of the three major credit reporting bureaus.
Here are the three major credit reporting bureaus:
- P.O. Box 740241
- Atlanta, GA 30374-0241
- Experian –
- P.O. Box 2104
- Allen, TX 75013-0949
- 1-888-EXPERIAN (397-3742)
- TransUnion –
- P.O. Box 1000
- Chester, PA 19022
Take note that each of these 3 credit reporting bureaus allows consumers to get a free copy of their personal credit reports each year.
That copy can be requested by accessing annualcreditreport.com, which the 3 credit reporting bureaus named above run.
But that’s only 1 free copy per year per person. So if the person seeking his credit report needs another report in the same year, he’ll have to pay for it already.
Differences and Costs of Credit Reporting Bureaus
The three major credit reporting bureaus are different companies and they operate independently.
Each of them has a different way of gathering information and making calculations for a credit score.
The credit reporting bureaus may provide different credit reports and credit scores.
But the items on the credit will be the same. After all, all the data is about the same person.
Each of them just has its own unique way of analyzing the financial information of the tenant.
A property manager can get credit reports from each of the credit reporting bureaus. However, keep in mind that the services of the credit reporting bureaus aren’t for free.
You can charge the tenant for the fee of conducting the credit report. Property managers are allowed to do it.
However, make sure that the money will be used for credit check only. You may very well get in trouble if you use it for something else — even if it’s only to buy yourself a drink.
So how much does it cost to request a credit report from the credit reporting bureaus?
Well, if you’re only getting one report from one of the 3 credit reporting bureaus, it can be as low as $15.
If you want to get credit reports from all 3 of the major credit reporting bureaus, though, you’ll have to pay a little more. It may run you anywhere from $30 to $40.
Credit Check Reminders for Property Managers
The property manager is required to disclose the information given in the report.
Also, most rental laws require the property manager to give a free copy of the credit report to the tenant.
It’s also advisable to contact the credit reporting bureau if there are suspicious items on the credit report. Doing this will prevent identity theft and fraud.
Tips for Conducting an Effective Tenant Screening
When reviewing the credit report of the tenant, consider looking for red flags. Doing this will help you identify if the new tenant is financially responsible or not.
To better help you, here are the red flags to look out for on a tenant credit check:
- Outstanding collection accounts from prior landlords with late or missed payments.
- Recent late payments on utilities and phone bills.
- Recent late payments on car loans and insurance.
If the prospective tenant has any of these, you should be wary of renting property to him. That’s since all of them are indications that he doesn’t manage his financial duties very well.
It may sound as though you’re letting the past dictate the future. However, research has shown that the reports and credit scores produced by credit reporting bureaus are predictive.
In other words, there’s a very good chance that a tenant will miss a rent payment if he’s missed bill or loan payments in the past.
Obviously, you don’t want to deal with that in your rental business.
Since you’re conducting a credit check, prefer setting a minimum credit score for applicants of your rental property.
Usually, property managers only accept tenants with 650 or above for their credit score. That’s because a credit score of 650 is considered good.
It’s actually the same score a lot of financing companies require from applicants seeking loans. It indicates that the person is a good bet for a loan because he’s managed his finances wisely up to this point.
So if you find a prospective tenant with a score of 650 or higher, be sure to consider him ahead of others with lower credit scores. He’s likely to make a better tenant than them.
You’ll still have to take a look at the rest of his background, of course. Still, it’s a good indication of how he’ll be when it comes to rent payments.
Final Thoughts on Conducting a Credit Check with Credit Reporting Bureaus
In this blog post, we talked about conducting a credit check with credit reporting bureaus.
The credit check is part of a tenant screening process.
The result of the credit check provides information about the tenant’s financial activities. This is a document called a credit report, and it supplies a financial history of the person in question.
To conduct a credit check, property managers get help from credit reporting bureaus. The credit reporting bureaus are allowed to collect the credit information of a person and sell it in the form of a credit report.
After getting the credit report, make sure to check it thoroughly and look for red flags. Doing this will help you avoid identity theft or fraud.
It can also help you detect signs that the prospective tenant is not a good tenant for your property. Signs like these include bad debt and previous evictions.
With the help of credit reports from the credit reporting bureaus, you can find good tenants for your rental properties from now on. The data compiled by the credit reporting bureaus gives you a useful insight into what prospective tenants may be like once rent collection day comes.
If you have more questions about credit reporting bureaus, leave them in the comments below.
If you need help marketing your business online then check out IM Consultant Services.
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 web site 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.