“How To Check Credit Of Prospective Tenants?”

Are you a property manager with tons of applications from prospective tenants?

Wow… that’s really good situation to have… Wouldn’t you agree?

So, the next step is to develop a way of managing and sorting your applications to be the most efficient in finding qualified and excellent tenants for your properties.

However, since you’re overloaded with applications you must be having a difficult time right now.  When applications pile up, your workload also increases.   That means you need to be able to rank your applicants using a thorough background check process.  

As an established property manager it’s a good thing when you know how to do a background checks. Part of the background check process can include you having to check credit of applicants.  

Today I will be sharing some easy steps on how you can do a credit check and use that information to find the most qualified renters.

Steps To Check Credit Of Prospective Tenants

An important part of the tenant screening process is to check credit report of every applying tenant. When do you need to do this? If your rental application process is to do credit checks you must include the proper authorizations and forms to be signed by the rental applicant when they fill out their rental application. Adding and doing a credit check on each applicant will help you to gain an understanding of what this process is all about and why is there a need to do it.

A credit check is how you analyze a potential tenant’s financial condition. It’s a good source of information that helps identify the prospective tenant’s financial stability.

After running a credit check the property manager must check the credit report to determine the most financially stable prospective tenants. Doing this will give you an idea who among the potential tenants are financially capable and could pay monthly rental fees on time. Also, it will help every property manager in making a decision whether or not to accept an applicant.

Once a decision is made, there will be lesser worries since you are assured that the tenants you chose and their financial stability won’t cause any problems when it’s time to collect monthly dues.

Step 1: Getting The Prospective Tenant’s Information

You can start to check credit reports of your prospective tenants when you already have basic information about them. Make sure that every applying tenant has completely and honestly filled up the rental application form. When running a credit check it is highly suggested that you have a credit check authorization form filled out by the tenant to avoid any confusion that you will be doing a credit check on them.

Authorization Form

The authorization form is where you’ll get all the information needed before proceeding to conduct any background, and credit check and we will go into further detail about the forms in the next section…

It’s important that you have all identifying information of your prospective tenant. Without such information, it won’t be possible to check the financial status of your potential tenants.

Information Needed To Check Credit Of Tenants

So what information is needed to start your credit check? The following items are a must that should be included in the rental application form that will be filled up by the applying tenants:

  • Name. Of course, this is basic and very important. You can’t check the credit of your prospective tenant if you don’t even know the person’s name.
  • Addresses. You must ask for the prospective tenant’s present and past addresses. Also, add the person’s current and previous landlords’ contact information.
  • Date of birth. This is to further assure you that you are doing a credit check on the exact person. And not someone who just has the same name as the prospective tenant.
  • Known employers. Both current and past employers. Contact numbers and addresses should also be included. This helps to check whether they are really existing.
  • Social Security number. Because this number is specifically made for one person only.
  • Financial information. This may include bank account/s. Even financial references and names of those that the prospective tenant shares an account with.

Step 2: Prospective Tenant’s Authorization

The most important part of the credit check process is to get the proper authorizations signed by the prospective tenant. If you don’t get proper authorizations to run a credit check you are violating the tenant’s privacy and could be pulled into court or fined.

Once you are done with gathering all the details you will need to an authorization signed by the applicants prior to running the credit check.

Fair Credit Reporting Act

Under Section 604 of the Fair Credit Reporting Act landlords, and/or property managers are required to provide an authorization form before they can proceed in doing a credit check.

Once you are done with gathering all the details on your tenants you will need to an authorization to check their credit signed by the applicants prior to running the credit check. The next step is acquiring this authorization from your prospective tenants. This can either be an authorization letter or an authorization form. This simply states that the prospective tenant is allowing you to do a credit check on that person.

Completing The Authorization Form

You can provide the authorization form to your prospective tenant and just let the applicant fill in their required details. To make sure there are no questions on their application it is best to disclose verbally that you are going to do a credit check and need the credit check authorization form signed by them. Make sure that the form is signed by the applicant and authorized by the tenant prior to beginning to run their credit check

In the case of an authorization letter, everything must be handwritten by the prospective tenant. Also, remind the applicant not to forget to indicate their signature on the form. This is very important. The signature serves as proof that the prospective tenant is giving you permission to check credit on them.

To make the process run more smoothly, I would highly suggest having credit authorization forms instead of relying on tenant authorization letters. Forms are easier to read and all legal disclaimers can be added to the credit check authorization form.

Step 3: Start To Check Credit Of Your Prospective Tenant

After acquiring the information of your prospective tenant along with the authorization form or letter, you may now proceed in ordering credit report of each applicant.

You can order a credit report of an applying tenant if you know the 3-B.

What’s the 3-B?

The 3-B is the three major credit bureaus namely, Experian, Equifax, and TransUnion. They are the agencies that are widely known for doing credit checks.

By signing up directly on their websites, you can start doing your credit check for your prospective tenants. If you already have an account on all three sites then, you can easily proceed with working on your credit checks and doing a 3-B or 3 credit bureau credit report.

Each of the 3-B websites offers a report that combines all 3-B credit reports together in one report. This is highly suggested to get a three credit check report because each of the 3-B companies analyzes the financial data differently. Since all 3-B credit bureaus have different scores you can really get a true overview of the tenant you are reviewing.

The 3-B’s And Credit Checks

The 3-B assists requestors like property managers when they do credit checks on their prospective tenants. They will provide you with a full credit report along with the credit scores that a potential tenant got after the credit check was conducted. Reports include and analyze all financial data, spending habits, bill paying habits which help you determine if this person will be able to pay rents on time.

If you are not familiar with conducting check credit, there are companies who specifically provide services for credit checking. You may buy their service and pay them depending on how deep you want the credit check to be. They will take care of the job for you and all you need to do is to wait for the full credit report that comes with an evaluation.

If you are using credit check companies and not doing the credit check with the 3-B’s make sure to be careful to always review their work and ask questions when needed.

Step 4: Knowing Some Details Of The Credit Report

Once the credit report is in your hands, all you will need now is to understand the content of the credit report of your prospective tenant. Understanding the reports will help you in evaluating and screening for the most qualified tenants to rent your property.

The Credit Score

A full credit report will include the result of the prospective tenant’s financial stability. A credit score of the prospective tenant can also be found on the report. The credit score is just like a summary of how good or how bad the credit of the prospective tenant. It is a three-digit number ranging from 280-850.

Any score below 700 can be risky for some property managers. It’s because the low-risk credit score ranges from 700-850. 850 is the perfect credit score that anyone can achieve but is not often the case. When one of the applicants has a credit score of below 700 or 650, your firm needs to decide the cut-off score, then consider it as a deciding factor to reject the applicant. That person will not likely to be able to pay monthly dues on time.

Although it’s stated that a good credit score is around 600 and above, some property managers, landlords and even lenders prefer a credit score that is around a minimum score of 650 to 700 or even higher. When you have applicants who have credit scores of above 700, you may be assured that these people will be capable of paying rental fees once you let them rent your property.

Other Information

You are also able to determine debt to income ratios of prospective tenants and other key financial ratios. When you finally understand the items on a full credit report, the credit score will be very striking for you because it can easily give you an idea that you may be about to accept a tenant with a bad credit. Make sure that you understand everything that is included in the credit report that you have.

Final Thoughts On When You Check Credit Of Potential Tenants

It is up to every property manager to decide if it is needed to check credit on your prospective tenant. When dealing with multiple applications and time is of the essence, a credit check evaluation and using it to sort your applications can help to save time and money for your staff.

I hope this blog post helped you easily process a credit check for your prospective tenants.




Suggested Articles:
1. Are Background Check Services Needed?
2. What Does The Rental Background Check Cover?
3. 5 Steps In Finding The Perfect Renter

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ARTICLE: How To Check Credit Of Prospective Tenants?

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