Late payments, excess damage, and violated leases are a staple of dealing with challenging tenants. Such problems are just one reason some investors shy away from investing in rental properties. However, landlords with a thorough screening process can avoid most of these issues by identifying high-quality tenants right from the start. That said, credit reports happen to be one of the most crucial steps in determining an applicant’s eligibility.
According to revenues and profits, real estate is still one of the best and safest investment ventures. Thus, we must ask how credit screening reports help landlords find an ideal renter. Stick around till the end of this article to find out. We’ll also explore the dos and don’ts of accessing a tenant’s credit screening reports.
What are Credit Screening Reports
A credit screening report contains information about a prospective renter’s financial stability. A non-partisan third-party screening service often collates it with approved access to public records. According to ppmnva.com, proper credit screening can reduce the chance of unpaid rent, tenant damage, and unruly behavior.
These reports often contain information like:
- Verification of personal data such as social security number, date of birth, and previous addresses.
- Payment history
- Declaration of bankruptcies
- Past evictions
In collaboration with other data, such a report can help you identify red flags and steer clear of troublesome tenants. It can also help you spot tenants that stand out as financially responsible and ideal candidates.
Why Should Credit Be a Part of your Tenant Screening Process
To Have an Idea of the Tenant’s Spending Habits
A screening credit report reveals a lot about a prospective tenant’s spending habits and their ability to repay existing debt. They might struggle to meet rent payments if they already owe a lot of money. But you’ll most likely receive timely payments if they currently manage their financial obligations well.
To Confirm the Renter’s Information
It’s standard for landlords to ask a tenant questions about their income and previous rental arrangements. However, performing a credit check allows you to confirm whether the renter is being truthful. Sometimes applicants over-inflate their income to stand a better chance of getting a house. But a thorough credit report will reveal such discrepancies if there are any. Of course, allowing the candidate to explain themselves would be best. Some applicants might have a valid excuse for such errors once you ask.
To Ensure You Make Wise Decisions
Finally, a thorough credit screening process can help you make wiser decisions. While a credit check alone isn’t sufficient to determine which candidate is the most eligible, it does carry a lot of weight. Thus, it can guide you in making the right choice.
Do’s and Don’ts of Credit Screening
Understand the Law
Before commencing a credit report, you must understand the law. Not knowing the proper rules and regulations leaves you open to liability and potential suits by disgruntled applicants. Thus, it would be best to familiarize yourself with what the Fair Credit Reporting Act permits and what limitations your state might have. Remember, you must stick to the same policy for every applicant. For example, it would be inappropriate to excuse specific candidates from this process because of their age, race, or nationality. If you need more guidance with FCRA policies, you can contact a real estate lawyer or ask a reputable property manager.
Ask for Permission
It’s crucial to ask for permission before signing off on a credit report. While landlords have the right to request this vetting phase in their screening process, tenants can still refuse. Thus, obtaining written consent from a renter before you run the check is essential.
Use a Reputable Reporting Agency
After receiving approval to run a credit screening report, you should contact a reputable reporting agency. While you can try to investigate this matter yourself, it can be a long and grueling process. It would be a much better use of your time and energy to outsource such a critical review to the experts. Several tenant screening services provide landlords with a comprehensive report for a nominal fee.
Rely on a Self-Credit Report
If you ask a renter for permission to run a credit report, and they say never mind, they have a copy you can use – be wary. While the tenant might be trying to save you the stress and cost of running another one, it’s best to do so anyway. Self-credit reports could be marred with miscalculations and omissions, distorting the truth. Thus, having a non-partisan third party perform the check to obtain the most up-to-date information is much better.
Reject a Tenant Based on the Credit Report Alone
Once you have the results of a tenant’s credit report, it’s important to remember it’s not the whole picture. Thus, it would be inaccurate to base your decision solely on credit scores. Mistakes can and do occur during credit reporting. Also, younger applicants might have lower scores because they haven’t had time to build credit. Hence, you should consider other things like income eligibility, criminal background, and landlord references to identify the most eligible candidate.
Get Rid of Any Documentation
Most state laws require landlords to retain documents that authorize a credit screening long after the application is processed. Typically, around 4 to 7 years, just in case any tenant decides to make a liability claim. Also, it is important to keep in mind that these authorizations must be kept for all applicants, not just individuals who moved forward in the rental process. Additionally, landlords have a responsibility to secure and safeguard any personal or sensitive information for all applicants. Therefore, make sure you research and comply with all applicable record keeping laws in your area to avoid potentially damaging disputes.
At the beginning of this article, we asked how credit screening reports help landlords find an ideal renter. As a document that sheds light on a potential tenant’s financial stability, it can be crucial in making the right decision. For one, it gives you a good idea of the tenant’s spending habits. Since it also confirms the renter’s income, it can tell you if they’ll be able to meet up with their monthly rent payments. This information can come in handy when making your choice. However, you should remember that the check is only to assist you, and there are other determinants you should consider before reaching a final decision.