Steps to Verify a Tenant’s Credit History

Answer

Checking a tenant’s credit is a critical part of the tenant screening process. Prospective landlords use credit reports to gauge whether an applicant meets financial responsibilities, such as paying rent on time. Understanding how to perform a proper credit check helps you reduce risk and make informed leasing decisions.

First, obtain the applicant’s written permission to run a credit report. Under the Fair Credit Reporting Act (FCRA), you must have a signed consent form before accessing any credit data. Many online rental applications include a checkbox or signature line specifically for this purpose. Without consent, you may face legal penalties.

Next, decide on your method:

• Tenant screening services: Platforms like TransUnion SmartMove, Experian Connect, or RentPrep simplify the process by consolidating credit, background, and eviction checks into one report. Fees typically range from $30 to $50 per applicant, which you can choose to cover or pass to the tenant.
• Direct credit bureau reports: If you have a business relationship with one of the major bureaus—Equifax, Experian, or TransUnion—you can order reports directly. Setting up an account may require proof of your landlord status and compliance with FCRA guidelines.

Once you receive the credit report, review these key elements:

• Credit score: Scores generally range from 300 to 850. While there’s no universal “passing” score, many landlords look for applicants with scores above 620–650. Consider market norms in your area when setting thresholds.
• Payment history: Check for late payments on loans, credit cards, or previous rent. Multiple late payments within the last 12 months could signal a higher risk.
• Accounts in collections or charge-offs: Judgments, liens, or sizable unpaid balances may indicate financial instability.
• Length of credit history: A longer history suggests more data points for evaluation. New renters without a substantial credit past may still qualify if they provide strong references or co-signers.
• Public records: Look for bankruptcies or evictions in the past seven to ten years. While not always disqualifying, these records warrant a deeper conversation with the applicant.

Keep these best practices in mind:

• Compare reports from multiple bureaus when feasible; different bureaus may show slightly different details.
• Review the report promptly—most online services deliver results within minutes.
• Avoid relying solely on credit scores. Weigh other factors like income verification, employment stability, and rental references.

Finally, communicate the outcome professionally. If you decide to deny an application based on credit, you must provide an adverse action notice that specifies the bureau used and the applicant’s right to dispute inaccuracies. For more guidance, refer to the Consumer Financial Protection Bureau or your local state housing authority.

Before making a final decision, it’s advisable to consult a licensed attorney or a certified real estate professional to ensure compliance with federal, state, and local regulations.