Why You Need To Get A Credit Report Regularly

“Why You Need To Get A Credit Report Regularly” written by Mike Marko

Is it necessary to get a credit report from applying tenants?

When you are screening to find the best tenant for your rental properties it can be challenging.  Knowing if they will take care of your rental property and pay the rent on time… can be challenging.  How can you really know?  

One of the possible ways is to get a credit report.  But does that give you information that can help?  I wrote this article to help you answer that question: “when you get a credit report for a potential tenant can it help you screen tenants?”

Reasons Why You Need To Get Credit Report And Check It

Today I want to talk to you about when you get a credit report to help screen tenants, but before we get started I want to talk briefly about…

What Is A Credit Report For Rental Property Screening

A Credit report contains information about the applicant’s credit history and financial activities over the past 7 to 10 years. Every late payment and unpaid bills are included on their credit report.

One of the best ways to determine if a renter has the financial history to consistently pay their rent on time is by using their financial history from the credit report. When you are evaluating your applicant’s rental application, just looking at their credit report will show you how that person pays their debts either consistently on time or has a tendency to be late with payments… However, aside from their financial history and knowing their debt paying habits, you could also use a credit report to protect your rental property business from criminals.

To Prevent Identity Theft

Identity theft is happening everywhere in the world: both online and offline. The use of someone else’s identity to get a loan, buy goods, or even rent a property is increasingly becoming more common. One of the best reasons why you would request or need to get a credit report from any applying tenant is to prevent an applying tenant from committing identity theft and thus allowing a criminal to live in your property. The person’s credit history details their past residences and also details certain financial activities that can only be found when doing a credit report.

If you find inconsistencies with a tenant’s past residences or financial background or are even made aware of identity theft through running the credit report, this should be a red flag on any applicant’s rental application. An error on a credit report could possibly be a hint that the person is either a past or ongoing victim of identity theft or the one who is committing an identity theft.

If a tenant is to get through the rental application using someone else’s identity then you have no idea who this person is. This person may commit or do further illegal activities while renting your property. If one of your tenants turns out to be a criminal, it could give your rental property business a bad reputation for not identifying that person before they did harm or criminal activities on others living around them. Normally, if your rental management business gets a bad reputation, your business could slow down and could eventually end up in bankruptcy.

To Check Financial Stability

Using the credit report is an excellent way to check a tenant’s financial stability and financial payment history. Having tenants that are financially stable is important for you to receive the rents you are charging and getting them paid on time.  

If the credit report of an applying tenant has negative items such as late payments of bills, bankruptcy, or evictions, it means that the applicant is having financial problems. Negative credit reports should be a red flag on a tenant’s application and need to be discussed directly with the applicant to determine if they were a one-time thing or an ongoing issue. If there is a large number of late payments or bad financial history shown this could be a reason for denying the applicant rental of the property they are wanting to rent.

Credit reports will sometimes include your applicant’s monthly salary or income. Knowing their monthly salary or being able to confirm that the salary they listed on the application was truthful could give you an idea that the applicant could pay their monthly rent.

Check These Items On Your Tenant’s Credit Report

The credit report comes with all sorts of excellent information on the tenant’s past finances and their history of how they have paid their debts. Knowing what to look for on the credit report is important in helping make the final decision as to rent to the applicant or not to rent to them at all.

As the property owner or landlord, it is advisable to check if these items are on the applying tenant’s credit report. Most of the items listed below are red flags and it could help you in evaluating their rental application or even denying the applicant for renting the property.

  • Late or delinquent in paying rent or bills, including student or car loans,
  • Convicted of a crime, or, in many states, even arrested,
  • Eviction records,
  • Involved in another type of lawsuit such as a personal injury claim, or not financially active enough to establish a credit history.

Credit reports include all the applicant’s credit activities for the past seven years. Identifying the financial habits and history of the applicants is important to find the most qualified person to rent your property.

Where To Get Credit Report

There are hundreds of ways to get a credit report online. Though there are numerous websites on the internet that offer services on getting a credit report, it is advisable to only use the websites of the three major credit bureaus to get the most up to date and accurate credit report on the tenant.

The 3 main credit reporting agencies are:

  1. Equifax
  2. TransUnion
  3. Experian

All 3 of these credit reporting agencies have contracts with the major banking and financial institutions so you get the most up to date financial picture on your applicants.  Each agency gives you a score, called an F.I.C.O. score ranging from 300 to 850. The higher a person’s score is, this shows that the person has used their credit wisely in the past.

Each company charges to run a credit report.  However depending on the law in your area, landlords can charge their applicants for ordering their credit report. The cost of the credit report ranges from $30 to $50 per person per report.

Is It Legal To Check Someone’s Credit History?

According to the law, landlords or property owners are not allowed to check the credit reports of their applicants without permission. When you are developing or using a rental application you should check your local laws as to what documents you would need to get signed authorizing you to run your applying tenant’s credit report.

In almost every instance, a written agreement or sign authorization allowing you to run or obtain someone’s credit report is required in order to make it legal.

Where To Get Credit Report For Free?

Actually, there are two ways where landlords and property managers could get free credit reports.

  • Require the applicant to provide credit report.
  • Order the credit report and oblige the applicant to pay for it.

I know it sounds crazy but both ways are legal. However, when the applicant provides their own credit report you should be aware that they could or may have deleted or changed data on the report. It is best to get your own credit reports done to verify that the financial data is correct and complete.

Anybody could get a free credit report from the three major credit bureaus.  Also, it is also legal to charge the applicants if their credit report is ordered by the landlord or property owner. When charging the tenant for the credit report it is free to you the property manager but of course, the tenant has actually paid to have it run.

Is It Possible To Reject An Applicant With Bad Credit Report?

According to Fair Housing Law, all of the applying tenants should be treated equally.  That means you should apply equal standards to all applicants.

That being said, all of them must pass rental application, credit report, and all of the necessary background reports.

Along with bad rental history, and criminal reports, it is legal to deny the rental application because of  bad credit report. A significant debt or judgment for an outstanding debt indicates that the applicant is having financial issues and may not be able to regularly pay monthly rent.

Just be aware, according to Fair Housing Law, it is illegal to reject applicants if it is based on their gender, age, ethnicity, race and etc. Since a bad credit report is not listed under the fair housing act it is more than reasonable to reject a tenant for rental on bad credit.

Last Thoughts Why You Need To Get Credit Report Regularly

The good old days of traditional ways of accepting new tenants is over. Today a handshake is not enough.  That’s why when you get a credit report for the rental applicants it may be able to help you select the right one.  

Please check out the rest of our website on additional rental property tips and information.   And message below if you have any questions or comments on this topic.




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3. How To Specify The Lease Term For Rental Properties

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Article: Why You Need To Get A Credit Report Regularly

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