Most experienced landlords will tell you that tenant screening is the most important aspect of renting property. Failing to screen prospective tenants causes more problems than just about anything else. After all, each tenant is a potential liability to a landlord.
Thoroughly checking up on tenants’ identification, credit history, criminal background, work history and previous rental situations can give you a clear picture of the tenant you are about to trust to live with your property and among your other tenants.
Here are some basic tenant screening tips from real landlords:
- Don’t skip the tenant screening process, no matter how nice or trustworthy a prospective tenant seems.
- Treating each applicant equally will help you stay within the law. This is another good reason to screen every tenant.
- Look at credit history, criminal history, evictions, judgments, bankruptcies and sex offender status.
- Fake IDs are easy to buy or make, so check the applicant’s Social Security Number and identity to be sure they are who they say they are.
- If the applicant is local, drive by their current address to see how they live. Is there a beater car parked in the yard? Garbage strewn about? Or is it neat and clean? How it looks is a good indicator of how they will treat your property.
- Don’t judge a prospective tenant by his or her clothing, car or jewelry. A hard working, honest tenant could be dressed in dirty work clothes, while a flashy car and fancy watch could indicate someone who has plenty of money, or is simply living above his or her means.
- Beware of tenants who want to move in fast and have plenty of cash to cover rent and the security deposit. Take your time and conduct your screening process.
- Talk to previous landlords. If a tenant specifically asks you not to contact the current landlord, find out why, and talk to former landlords. Conduct the rest of your screening process and if the tenant is approved, let him or her know, and then contact the current landlord.
- Don’t base your entire approval on the landlord’s reference. Some will be anxious to get rid of a bad tenant (and give a good reference). Others will be honest.
- Take notice if the prospective tenant is late for appointments without apology or is unhappy about paying an application or screening fee.
- Ask why they’re moving.
Using these tips, along with a professional tenant screening service, can help insure that you lease only to qualified tenants. Good luck!
Experienced landlords know that being tough is an important part of their job descriptions. With the economy still suffering and unemployment still high, many prospective tenants’ credit scores have taken a beating. But should landlords take into consideration the difficult economic circumstances of many American families when deciding whether or not to approve a lease application?
In other words, should landlords overlook lower credit scores or bankruptcy filings and try to help lease applicants?
Certainly, every situation is different. Many landlords will not budge on their credit requirements. Others look at the whole picture, and will pass a less-than-stellar credit score if the tenant has a steady paycheck that more than covers rent and other living expenses. Still others check prior evictions, and if there are none, then they will take a chance on the tenant.
And then there are the landlords who aren’t tough enough to say “no” to a prospective tenant with a poor credit history and no steady job. Whether they feel a sense of obligation or feel sorry for the tenant, they sign the lease and hope for the best. Often, they end up losing money, can’t get rid of the tenants and rack up thousands of dollars in eviction fees.
Trying to help people is noble, but it’s not a landlord’s job. A landlord’s job is to provide safe housing, to protect other tenants from potential harm, and to earn a profit from leasing property. You may hear sad stories of job loss, divorce, illness, death of loved ones and tough times. There is no doubt that it’s difficult to make a decent life for a family these days, when good jobs are hard to find.
Nobody wants to see a family out on the streets. But landlords have to be tough to protect themselves and their sizable investment. Checking tenant credit histories, conducting background checks, and sticking to your minimum qualifications will keep your rental property business strong and sustainable into the future. If you’re not tough enough, you may not have a future in the landlording business.
Most landlords and property managers screen prospective tenants carefully. But if you’re new to landlording, you may be wondering if it’s necessary or worth the trouble.
The answer is yes! Running credit checks on every lease applicant will give you the peace of mind of knowing your business and livelihood are protected. Here are the basics of tenant credit checks, so you can know what to expect.
- The Fair Credit Reporting Act (FCRA) requires credit reporting agencies and credit report users to follow strict guidelines. To increase accuracy and prevent identity theft, Congress made changes in 2004 to restrict who may access credit information. Rental businesses must comply with rules such as operating a separate, secure business office, holding a business license and submitting to an on-site inspection.
- Landlords who don’t meet these standards may not obtain an individual’s actual credit score. Instead, they may obtain a comprehensive report regarding the applicant’s publicly available information, such as liens, judgments, bankruptcies, social security validation, and criminal records search.
- In addition, landlords must obtain the applicant’s consent to release credit-related information, and the applicant must confirm his or her information (name, SSN, date of birth and address) before the landlord receives the report.
- It’s easy and quick to verify a prospective tenant’s identity and credit worthiness. With E-Renter.com, you’ll receive a background report within an hour Monday through Friday, and same day if ordering on the weekend.
- For property management companies, full tenant credit files, business credit reports and criminal background checks are available immediately online, 24/7.
- Any credit information landlords receive on individuals must be held in the strictest confidence. If credit information is used to reject an applicant, the FCRA requires that he or she be advised in writing.
Using a reliable, experienced tenant screening service is the best way to ensure you are in compliance with all federal and state regulations.
Smart landlords always run tenant credit checks and prescreen tenants. They talk to applicants’ former landlords and check for criminal activity. But when the economy is so tough, many landlords find that screening tenants and making decisions on signing leases is based partly on data and partly on circumstance.
For example, Wendy has been a landlord for many years, and has “seen it all.” She says that tenant credit scores are as volatile now as she can remember. “Some people with six-figure incomes have been forced to short sell their homes, and have lower credit scores as a result,” she said recently. “I’ve had to look more closely at their credit card and car payment history, and not just their credit score.” For Wendy, renting to people who recently owned and lost a home is less risky than renting to those who are continually late with rent payments or have history of evictions.
Mike, on the other hand, looks at credit scores and collection reports closely; he considers student loans collection activity to be a deal-breaker, but thinks medically-related collections reports are acceptable. “People can’t help what happens to their health,” he said. “Medical costs are outrageous and so many people don’t have insurance. I try to work with people who have had medical concerns.”
For most landlords we know, any eviction or rent collections activity on a prospective tenant’s credit report is not okay—even in these tough times. Bob is a fairly new and cautious landlord, who has been seeing more rent issues on credit reports. He always checks work references and tries to talk to as many landlords as he can. “Landlords usually tell me the real deal on their tenants. At first, I thought they’d give only good references, just to be done with a poor tenant, but I’m finding that they don’t want me to inherit their problems.”
Bob shared that he also talks to tenant applicants about any issues he finds on their credit reports. “I ask them why they didn’t pay their student loans, or what happened with the late car payments. Some will make excuses. Some will blame others. And a few own their credit problems and explain how they’re making them right.”
While credit scores are an important indicator of whether or not a tenant will qualify for a lease, many landlords indicate say that it’s not the only factor they consider. “A good rental and work history means more to me than a number,” says Brian. “I’m careful, but I prescreen and talk to work and landlord references before I make my decisions.”
The rental market is going strong in most areas of the country, as more folks are renting instead of buying. While many landlords are enjoying high vacancy rates, they still need to be cautious; the economy has really hurt the credit scores and bill-paying ability of millions of Americans.
Every landlord has a different standard for accepting new tenants, but the importance of conducting thorough credit checks and tenant background checks is clear. This is the one area that experienced landlords will tell you not to skimp on, because if you do, you will more than likely regret it!
Tenant credit checks and background screening doesn’t take long, and can be inexpensive. Most landlords pass the fee on to the prospective tenant, and most tenants are accustomed to paying the fee. If you have an applicant who has a problem with paying the fee or signing the authorization to conduct a background screening, then you probably don’t want them as a tenant, do you?
The screening process begins with the lease application, where you may ask questions about the applicant’s address history, work history and credit history, and obtain contact information for previous landlords and personal references. You may ask if the applicant has ever broken a lease, if they paid rent on time, why they are moving now, and about their income.
You may not ask a potential tenant about race, religion, family status, disability, or any other information that might indicate a breach of the Fair Housing Act.
Be sure to obtain the applicant’s signature on a separate notice that informs him or her that you will be running a credit check and background screening, based on their name, date of birth and Social Security Number.
Most experienced landlords will also phone references and previous landlords. Be careful how you phrase your conversation, because too many tenant applicants will provide the phone numbers of friends who have agreed to pose as a landlord or employer. Simply identify yourself and ask the person on the other line, “How do you know Joe?” The correct answer may be “I’m his landlord,” or “He used to work for me.” If Joe gave you Tom’s name as a previous landlord, and Tom answers, “Joe and I are on a bowling team together,” you may have spotted an inconsistency in Joe’s story. Be on the lookout for more of them!
Finally, you should run a thorough tenant screening credit check to find out how the applicant pays bills, if they’ve filed for bankruptcy, and what their credit score is. A criminal background screening will reveal whether or not you have a convicted felon or sex offender applying to live in your rental property.
Don’t forget to trust your gut when screening tenants. You don’t have to give a reason for rejecting a tenant in most areas (check your state and local laws)—but do be careful and apply the same criteria to every applicant, or you could be accused of discrimination. You can’t reject an applicant solely for the color of their skin, but you can reject one because their credit score did not meet your minimum requirements—along with the bad feeling they gave you when you met them!
Landlords who conduct tenant prescreening—and that should be every landlord—need to be complaint with federal regulations regarding personal and financial information. The Fair Credit Reporting Act (FCRA) and the Fair and Accurate Credit Transactions Act (FACTA) govern such information and its safekeeping, so it pays to be familiar with certain sections that cover how credit reports can be used, liability for noncompliance and conditions on disclosures to consumers.
The “Red Flags Rule” requires many businesses to establish written identity theft prevention programs to detect “red flags,” or patterns and warning signs that identity theft could be occurring.Last year, new rules were added that could affect landlords. An addition from December 18,2010 amended the definition of “creditor” to include those who regularly and in the ordinary course of business:
- Obtain or use consumer reports in connection with a credit transaction;
- furnish information to consumer reporting agencies in connection with a credit transaction; or
- advance funds to or on behalf of someone (except for those incidental to a service provided by the creditor to that person).
Depending on where you live and conduct business, you may be responsible for different laws regarding credit reporting for tenants and lease applicants. Here are four easy procedures that can help any landlord reduce identity theft:
- Make sure the applicant’s ID is real: forgeries are rampant and hard to detect. Tenant screening should include an ID check.
- Social security numbers and addresses must match up.
- Pay attention to alerts on credit reports.Victims of identity theft will add alerts to their credit reports.
- Keep all tenant personal and financial information secure in locked, fireproof cabinets. Limit access to these files and never leave confidential paperwork out on a desk or other area where it can be stolen.
Protect your tenants and yourself from liability by following the Red Flags rule.
What should a landlord do when a potential tenant states they have had their credit report pulled recently and therefore, there’s no need to run another credit report for their lease application? Should they accept the applicant’s report and save the time and trouble?
In a word: no. Some tenants might be trying to save money and might not see the need for another credit report. Or, they may want you to know up front that their credit score is low; in this case you can make a decision to continue with your own report or reject their lease application.
And then there are those who fabricate their own credit reports, which happens every day to landlords and others who aren’t as cautious as they should be. Fake credit reports are widely available, so don’t make the mistake of accepting any credit report other than one from a trusted service provider.
Smart landlords don’t run their rental property business on guesswork. To really know who you’re renting to, always reinforce your policy that a credit and background check will be conducted on every tenant applicant.
If, after hearing you won’t accept their credit report, the potential tenant is no longer interested in your rental property, you might have dodged a bullet.
Of course, there are exceptions to every rule! In some states, landlords must accept a potential tenant’s credit report if it is no older than 30 days. Other states have legislation that a credit bureau must forward an existing credit report whenever the tenant applies for a lease within 30 days. These laws are designed to prevent tenants from incurring high fees from repeated applications.
Landlords have the right to protect their business interests by leasing to qualified tenants. Make sure yours are qualified by conducting a thorough credit and background check on each one–even if they have one in their pocket for you!
Why Pre-Screen Tenant Applicants?
There are several advantages to screening tenants prior to signing a lease. One is that you can avoid discrimination issues by applying the same approval standards to every lease applicant—including a standard background and credit check. Another advantage is the reduction of risk. Why take a chance on a tenant who could have a history of evictions or an income that cannot support the rent? Mitigate risk by conducting a thorough credit check on every tenant.
What Will I Learn From a Tenant Credit Check?
You can learn at a glance if your prospective tenant pays credit card bills and loans promptly, as well as if there are any outstanding judgments against him or her. Previous bankruptcies are also typically reported. or bankruptcy filings. You can determine the minimum level of approval for your applicants, based on a good record of responsible finances and living within their means.
Be sure to compare the report’s list of an applicant’s previous addresses with those provided on the lease application. Are there inconsistencies? If so, the tenant is hiding something, or there is a legitimate explanation. Either way, you need to know before you sign a lease.
The information you gather from a tenant credit report must be held in strictest confidence, and never shared with third parties. Your applicant may have a right to the report—check your state’s guidelines and the Fair Credit Reporting Act (FCRA) to be sure you are compliant. If you reject an applicant for credit reasons, you must advise them in writing. Your best and easiest way to screen tenants is through a reputable, professional tenant screening service.
Consistency Counts When Screening Tenants
It’s important to be consistent when it comes to pre-screening tenants.
- Screen all lease applicants, no matter how they look, dress, or what kind of car they drive.
- Use the same screening procedures for each prospective tenant. Exceptions could be interpreted as favoritism toward or discrimination against a certain group.
- Establish a clear policy of background checks on all applicants to protect your rental property business.
Remember! Use a screening service with nationwide coverage and access to all three credit bureaus.
When it comes to filling a rental vacancy, most landlords are happy to have several applications to choose from. But sometime, you don’t have a clear “winner” among your potential tenants. As the economy continues to slog along and unemployment shows no signs of easing up, it’s possible that the pool of potential tenants will just keep declining in quality.
What does a landlord do when the only applicants for a rental property have low income, no job, shaky references or no clear source of income?
The first thing to take a look at is each tenant’s credit history. If the applicants pay their bills on time, they will likely pay their rent on time. If all four have questionable credit checks, then compare incomes. For example, if Mary will be paying 2/3 of her income on the rent, but Jane makes enough to cover rent with just 1/3 of her take-home pay, many landlords would breathe easier signing a lease with Jane.
What about unemployed applicants? Landlords report they are seeing more applicants who report they are unemployed. Most receive unemployment benefits, but as everyone knows, they run out. Is an unemployed applicant a definite “no?” Not for some landlords. Devin says he checks other sources of income, such as child support and disability payments. If unemployment is a potential tenant’s sole source of income, he will typically deny the lease application.
For potential tenants who are self-employed, it’s not always easy to prove income. Ask for tax returns, bank statements, and several references—including, of course, former landlords. Money in the bank is a good indicator that the tenant lives below his or her means and knows the value of having cash reserves. And, note that the income reported to the IRS may or may not be indicative of the individual’s true income.
When landlords feel pressured to sign a lease with a less-than-perfect credit risk, it’s sometimes a little less painful to make it a six-month term rather than a full year’s lease. If the rent has been paid on time, you can always extend it for another six months. If not, it’s possible that the pool of potential tenants will have improved in six months.
The Fair Credit Reporting Act (FCRA) established rules to protect privacy and guarantee report accuracy when businesses, banks, and rental property owners check consumers’ credit histories. Landlords are allowed to obtain tenant credit reports as long as they follow the FCRA’s provisions.
Specifically, when landlords obtain information about a potential tenant’s credit history, rental history, previous evictions or a variety of other pertinent personal information, and they use that information to determine what they require from the tenant, they must give the tenant an “adverse action notice.”
For example, a low credit score might mean the landlord requires a co-signer on a lease application. Or, a previous eviction may mean the tenant’s application is denied altogether. Even requiring a higher rent deposit is considered an “adverse action,” if it is based on information obtained in a consumer credit report. And really, if a landlord requires a higher deposit from Tenant B than from Tenant C, the only grounds he or she could base that decision on would be a tenant credit report—or else a discrimination claim under the Fair Housing Act could be in that landlord’s future.
When a landlord takes adverse action against a tenant applicant, the FCRA requires a notice to be supplied to the tenant. The notice must include:
- the name, address and telephone number of the Consumer Reporting Agency (CRA) from which the report was obtained;
- a statement that the CRA did not make and cannot specify the reasons for the adverse decision;
- a notice of the tenant’s right to dispute the accuracy of the information the CRA supplied;
- notice of the tenant’s right to a free credit report upon request from the CRA within 60 days.
The adverse action notice can be given verbally; however, a written notice is advised, since the landlord would then have proof of giving the notice to the tenant.
Even if the CRA is checking information that has nothing to do with the tenant’s credit, such as verifying tenant employment or income—an adverse action notice is required if that information is the basis of a denied application, higher security deposit, or other action required by the landlord.
There are serious legal ramifications for landlords who fail to supply notices required by the FCRA. Check with your attorney if your procedures are called into question, but in the meantime, educate yourself about your responsibilities under the law.
The Fair Credit Reporting Act is available online, so it’s easy to familiarize yourself with its provisions and updated requirements. And updates are done frequently, so it’s up to every rental property owner to stay informed on a regular basis.