“How To Run A Credit Check For Property Managers”
Do you know how to run a credit check for prospective tenants?
As a property manager, you should know your potential tenant’s capability to pay the bills and rent. You should have diligence while conducting the background checks since the tenant will be the one who will live in the rental property… an important asset for your business.
And as part of your search, it is important to run some form of credit check.
So how do you run a credit check? That’s the subject that I would like to cover today to help ensure you have the best tenant in your rental properties.
Credit Check Services
Credit check services are a key part of determining the most qualified renters for your properties.
When you have determined that you have found a possible renter, the next step is to use a credit check services to complete your background check.
What exactly is a credit check and who can you utilize to completing credit check service?
The credit check and report will require specific steps that will be required in order to get the report legally. When you receive the credit report you will be given tons of financial data to analyze: and it has nuggets of information that you need to make an informed decision. Additionally, if you find good or bad financial reports on the possible tenant… what are your next steps.
Let’s get into breaking down the process for your benefit.
Step To Take Before Running A Credit Check
Before running the credit check on your possible renters, you have to first have a complete rental application. The rental application will include an area to give you the authorization to run a credit check for each tenant 18 years old or older. Provide a pre-printed form for each tenant to complete to gather his or her full name, birth date, Social Security number, previous address, and landlord contact information for the past two years. Check with your local laws to see if you need a separate authorization form to run the credit or if just adding it to your rental application is good enough.
Whether using the rental application or an additional authorization form, make sure that the form also includes a statement saying that your plan to run a credit check on the tenant. Many applicants won’t fill in all fields on the application, so you must make sure that they sign the consent that they allow you to do so.
Most states allow you to collect a Credit Check fee from the tenant. This has to cover all the fees for the credit reports that you will have. You can also add additional costs to conduct a complete background check as long as you disclose this on your rental application (check with your local laws to determine if this is necessary).
You now have your authorization from your applicant. The next step is to determine the best and most efficient cost-effective way to get the credit check completed…
Running Credit Checks
There are many ways of doing a credit check. You can do it yourself, or employ a credit bureau to complete the credit check for you.
Running the credit check yourself is obviously the most inexpensive way, but with privacy laws, the information you can get on your own is very limited. I would not suggest this route…
The easiest and cost-effective way is to employ one or all of the three credit bureaus to do the credit check. The 3 main credit bureaus are TransUnion, Equifax, and Experian.
When doing a credit check I would suggest doing a 3 credit bureau credit check so you have the most complete data on the person.
After receiving the credit check, the challenge is what to look for if the credit report is already in front of you and how will you analyze each detail that it has.
The three main credit bureaus that offer a tenant screening process which allows you to pull up a credit report on potential tenants are TransUnion, Equifax, and Experian.
Experian – Will charge the rental applicant $14.95 for the credit check.
TransUnion – The total fee to receive a credit report, credit recommendation, and criminal background check are $30 via the TransUnion.
Equifax – To receive an Equifax credit report, independent landlords have to go through the National Association of Independent Landlords. The fee is $15.95 for a comprehensive credit report. Full criminal background checks cost $29.95.
I have used all 3 bureaus separately and successfully, but have found doing a 3 credit bureau check report utilizing all of their data is the best option.
Finding reliable online credit check services is vital to getting the most current and accurate financial information on your possible renters. Getting a 3 credit bureau report can be obtained directly with the credit bureaus or through other online services. One common online service used is CreditReport.com. This service has a capability of pulling up all those three reports and provide all the information at one time.
I again would highly suggest for you to get all three of those reports because some of the information may differ from each creditor. And it is better to analyze a lot of information to better know your potential tenant’s financial behavior.
What To Look For On The Credit Report
The following are things to look for on the credit report.
Negative or Potentially Negative Items Section. This is typically on the first page of the credit report. You can find any accounts that are past due, discharged, or in collections in this section.
Bankruptcy, Eviction, or Foreclosure on a Home. These negative marks can be found in the negative items section of the report. You can also find these indications next to the pertinent account, in the itemized list of accounts on the subsequent pages of the credit report.
Individual Credit Accounts and Loans. You can review each account for late payments. The report lists if the account is current and – if there were any late payments – how many times the account was paid late. Additionally, the report lists how late the payments were, such as 30 days, 60 days, or 90 days delinquent.
What If They Have A Bad Record?
Bad behavior in the past doesn’t mean that a tenant WILL have bad behavior in the future… but it is a pretty good indicator of what will probably happen.
If the tenant’s credit report shows a series of late payments or unpaid debt or even a bankruptcy, then you have to give them strong consideration. It is possible that the tenant will no longer demonstrate that behavior… but they can still do it to you right now, so better be wise in decision making.
Start by talking to them personally. Discuss those bad indications on the credit report. That way they can tell a story of what happened and defend themselves if they can. You have to weigh their explanation against what is in the report. Remember… they have the motivation to mislead you so be sure to cross-question their explanation.
For example, a filed a bankruptcy is not always grounds to turn them down. They have had a good payment history, or a really good explanation of the bankruptcy (like a bad divorce, etc). Weigh all the data you collect before making a final decision.
Doing a credit check is very useful in making the decision whether to accept a potential tenant. The credit check this will help you identify if the renter fits your standards and qualifications.
Remember to take the time to property screen who will ultimately live in your rental property. Not only will this save you money but this will also help protect you from the horror stories you’ve heard about from other property managers.
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