If you’re a landlord who’s on the lookout for potential tenants to rent out your properties to, you’ll have to conduct certain background checks and the tenancy credit check is one of them. In this post, we’ll first talk about why tenancy credit checks are important and then, we’ll delve deep into how you can carry out these checks for the best results.
Why are tenancy credit checks important?
On the surface, your potential tenant(s) may seem like the nicest person ever, but as a landlord, you shouldn’t be hesitant to scratch the surface as there may be a lot of things that the potential tenant doesn’t want you to know.
A tenancy credit check can reveal the following financial information that a potential tenant may be trying to hide from you:
- Frozen accounts due to non-payment of dues
- Multiple late payments
- History of bankruptcy, bad checks and other financial behavior that may endanger your rent agreement (if signed)
In recent times, tenancy credit checks have become vital parts of the tenant screening process and we recommend you not to skip this check as it can give you some much-needed peace of mind and trust before you hand over your property.
How to carry out a tenancy credit check
Through a credit bureau
Equifax, TransUnion, and Experian are the three credit bureaus that most landlords rely on for conducting tenancy credit checks. While Experian doesn’t charge any money for running tenancy credit checks, both TransUnion and Equifax charge approximately $30 for their services.
The TransUnion and Equifax reports are available inclusive of complete criminal background checks. You can also apply for only a credit report through Equifax, which would set you back by $16. If you are an independent landlord, you have to first approach the National Association of Independent Landlords for an Equifax report.
Through a specialized agency
In recent times, many landlords have also been approaching Tenant screening services for running credit checks on their behalf. The reason for this is the fact that the different credit reports generated by bureaus such as Experian and Equifax are formulated based on different parameters and making head or tail of these reports may be difficult if you’re a landlord who’s not sure of what to look at in a credit report.
Specialized agencies have separate charges that landlords can pay to receive thorough and detailed information regarding the various elements in a credit report.
Generally speaking, there are two main elements that you need to look out for in a potential tenant’s credit report.
- Sections titled ‘Negative Items’ or ‘Potentially Negative Items’: Most credit reports feature these sections on their first page and in them, you’ll find all the information related to money that a potential tenant currently owes (potentially negative) and money that he/she has failed to pay in the past (negative). This section may also have negative marks such as past evictions and bankruptcy.
- Individual loans and credit accounts: If you want detailed information related to how a potential tenant’s credit accounts have fared in the past, this is the section of the credit report you should jump to. Apart from knowing whether the accounts are active or frozen, you’d also know about late payments and the period of delinquency.
Once you are happy with a potential tenant’s credit report, you can then move on to discussing terms and finalizing the rent agreement.