When renting out your place, it's important to know if the person moving in can pay their rent without issues. This is where learning how to run a credit check for a tenant comes into play. It's like a report card for how they handle their money.

A credit report can show if a prospective tenant has made late payments, which can be an indicator of their financial responsibility. As a landlord, the last thing you want is the hassle of chasing after rent or, worse, having to ask someone to leave because they won't pay.

And that's the type of scenario that a tenant credit report can help you avoid.

It's More Than Just a Credit Score

When you think about a tenant credit check, you might assume it's only a credit score. But what's important to remember is that a credit score is just one piece of the puzzle. When you pull a credit report of your potential tenants, you may get a fuller picture. This means you should probably look at their entire credit report to see the full story - not just their credit score.

You don't have to do it alone, though. In fact, it’s pretty easy.

Many property management software systems offer Tenant Screening services - including right here on TenantCloud. Our platform makes it easy to go through the rental credit check process so you can confidently run them on your own every time you need them. Using property management software to run credit checks can prevent you from stepping on any toes or even breaking privacy laws.

So, let's get into the what, why, and how of using credit checks to find great tenants. We'll walk you through it step-by-step to ensure you're set up for success.

In a rush? TL;DR: 

A tenant credit check helps you ensure timely rent payments and provides a glimpse of a tenant's financial habits. Knowing their previous financial behavior can help you identify responsible tenants and protect your rental investment. This includes examining credit scores, debt levels, and past rental history. To conduct a successful and legal credit check, make sure to get written permission from the applicant, use a trusted screening service (like tenant screenings on TenantCloud), and review the report carefully. Keep your decision-making process consistent. Treat all applicants equally by following both FCRA guidelines and fair housing laws - regardless of whether you're an independent landlord or a large property management company.

Tenant Background Check vs. Tenant Credit Check

A tenant credit check and tenant background check are two separate tools often used by landlords to assess potential renters. While each one serves a unique purpose, they are both vital tools in the tenant screening process that can provide a bigger picture. 

So, let's take a quick look at the differences.

Background Check

A tenant background check helps you identify their criminal history background. Think of it like a report card for behavior. Do they have a history of breaking the law? Are they going to cause a ruckus at your rental?

Credit Check

Whereas, a tenant credit check is more about how they handle their finances. Do they pay their bills on time, or is their mailbox stuffed with overdue notices? Have they shown a history of making payments on time, or are they dodging phone calls from creditors? Chances are, they may be more likely to not pay your rent requests.

In A Nutshell

A background check can make it easier to vet tenants based on previous behavior, while a credit check can show how financially responsible they are. When it comes to finding the right tenant, both checks are equally important.

You can pull both types of reports on TenantCloud, but in this article, we'll only be going over tenant credit checks. 

Why Should I Run a Credit History Check?

Have you ever let someone borrow something, only for it to come back in several pieces? It’s incredibly frustrating. Think of a credit history check as doing homework on someone before you let them borrow your most valuable item—in this case, your rental property.

Here's why it's a smart idea:

  • Assure Rent is Paid on Time: A credit check can make it easier to determine if they have a good track record of paying their bills. You want someone who will pay on time without needing constant reminders.
  • Find Responsible Tenants: Their credit history gives you the lowdown on how they manage their money. Do they spend wisely, or are they maxing out their credit card, resulting in bad credit?
  • Spot Red Flags: Other issues that often show up on credit reports, like getting evicted or having a vehicle repossessed, can be red flags to landlords.
  • Keep It Fair: Using the same credit check rules for every applicant means a fair, equal hiring process.
  • Peace of Mind: Finding a tenant with “green flags” like good credit can be a breath of fresh air. It generally means less stress worrying about rent and more time enjoying being the boss of your property - or the golf course. 

Checking out a tenant's credit history is your secret weapon to make sure you're handing the keys over to someone who's as reliable with their money as you are with your property.

When you combine a tenant credit report as part of a complete consumer report (e.g., a report that also includes additional background information such as their criminal record), you get a big-picture view of who your prospective tenant is.

What To Learn From with a Tenant Credit Check

As you run a credit check on a potential tenant, it's important to know what to look for so you can spot any red flags.

Examples of Tenant Screening Information on Reports

Here’s what may pop up when you check a tenant's credit:

Credit Score A high score means they're most likely on top of their payments, while a lower score may indicate financial instability.
Payment HistoryThis tells you if they pay their bills on time. It’s important because you want your rent paid when it’s due.
Money OwedYou can see if they have debt. If they owe a bunch of money elsewhere (especially to a previous landlord), they might have a hard time paying rent.
Length of Credit History:How long they've been dealing with credit tells you if they’ve got a track record of being money-smart or if they’re just starting out.
New Credit and Accounts If they opened new accounts recently, it could be a sign they’re overextending themselves.
Types of CreditIt’s often preferred to see a mix—like car loans, credit cards, and student loans. It may show they can handle a wide range of bills.
Rental HistorySome credit reports include past rental info. If they’ve been evicted or owe rent, it may show up here.

Identity Verification Information on Screening Reports

A credit check can also make sure the applicant is who they say they are. You may see things like:

  • Full Name, Aliases, and Date of Birth: Make sure you know all the names they go by and verify their date of birth.
  • Social Security Number: Matches the name to the number to catch any identity mix-ups. 
  • Current and Past Addresses: Shows where they've lived, which helps track their rental history.

Public Records on Screening Reports

This is where you spot if they’ve run into serious trouble, like:

  • Bankruptcies: If they’ve had to declare they can't pay their debts legally, it might be a red flag.
  • Evictions: Past evictions can signal trouble for future landlords.
  • Lawsuits or Judgments: Shows if they've been sued or had a court say they owe money.
  • Liens: If they owe money and someone has a legal claim against them until they pay.

When you put all this together, you get a bigger picture of their financial and legal behavior. It’s all about making sure you’re handing your keys to someone you can trust. Remember, the goal is to find tenants who are able to pay rent on time and take care of your property.

Now, having that information is great. But interpreting it enough to make a decision is a different story. So, let's discuss the next step in the tenant screening process.

What to Consider In a Tenant Credit Check?

If you're looking at a tenant's credit report, you're not just looking at numbers. You're looking for the story behind those numbers. Here’s what to weigh in on:

Start with the Credit ScoreYour applicant's credit score helps you determine how well they handle their money.
Check the Debt-to-Income RatioA tenant's credit utilization tells you how well they’ve got their finances under control. If they make enough money to comfortably cover the rent after their other bills, that's a good sign.
Look at Payment PatternsLate payments happen here and there. But consistent late payments may mean it's a habit.
View Account StandingAre their accounts in good standing, or are they overdrawn and maxed out? This helps you gauge their current financial health.
See Rental History DetailsIf their credit check includes rental history data, give it a look. A steady rental history without blips can mean stability.
Check Public RecordsEvictions or bankruptcies tell you they've had serious financial struggles. You'll have to decide if it's a deal-breaker for you.
Weigh-in On InquiriesIf they're applying for lots of loans or credit cards, it could indicate that they're stretched thin financially.
Look for Fraud AlertsThese can pop up if the tenant has been a victim of identity theft, which could affect their credit score unfairly.

Remember, everyone's got a story. Maybe they've got a low credit score because of misfortune, such as medical bills. If they have never missed a rent payment, that can be a good indicator to consider a tenant with an otherwise low credit score or high debt-to-income ratio. Talk to your potential tenant if you have any specific questions.

Make sure to stick to the same standards for all applicants. Following the guidelines in the Fair Housing Act means avoiding discriminating against anyone and relying solely on the information in their background check.

Tips On How To Run a Credit Check

Running a credit check on is easier than it might sound. Here are some tips to help you through the process:

  1. Get Permission: Always get written permission from the prospective tenant. It's not only polite; it's a requirement of the FCRA (Fair Credit Reporting Act). You can do this through our online rental application form, which is included in your TenantCloud account.
  2. Pre-Screen Your Applicant: Before processing a credit or background check, first pre-screen your tenants. For instance, if a renter's income must be 3x the rent, but they only earn 2x, this pre-screening answer would usually halt the application process.
  3. Choose a Service: Pick a reputable tenant screening service or credit bureau that provides full credit reports, background checks, and income insights. (TenantCloud offers thorough tenant screening packages that check all the boxes.)
  4. Gather the Details: Have the tenant’s personal details available, like their full name, address, Social Security number, and birth date. Ideally, you'd want your applicants to fill in this information on their online rental application.
  5. Understand the Costs: Running a comprehensive credit check costs money but should be affordable. You'll need to decide if you'll cover these costs or if you'll ask the tenant to handle the fee. You can set up the fees however you like on your TenantCloud.
  6. Review the Results: Once you have the report, take your time going over it. Our tenant screening reports give you all of the information you need to make an informed decision and help you find a great tenant.
  7. Keep it Confidential: This info is private. Make sure you keep it safe and don't share it with others. This is easy to do on TenantCloud since only you should have the login information.
  8. Follow-up with the Tenant: Consider talking to the tenant about any records that come up. Sometimes, there's a good explanation for a past issue. If you decline an applicant after screening them, you'll need to send them an Adverse Action Notice, per the FCRA.
  9. Stay Consistent: Use the same process for every applicant. This helps you stay fair and avoid potential legal issues that can arise in the application process.
  10. Know the Laws: Brush up on laws like the Fair Credit Reporting Act and your local (state/city) regulations. For example, some states like New York (or individual cities like Seattle) have a unique set of laws that govern the tenant application screening process.

Conclusion

Taking a close look at tenant credit reports is key to finding great renters. It's a process that may have a learning curve, but doing so will ensure your property is in good hands. By checking the credit history, verifying their income, and running a background check, you’re doing the best you can to find someone who will be a great renter. So, here's to finding rockin' tenants and being a stress-free landlord.


Frequently Asked Questions on Tenant Credit Checks


How much does it cost to run a credit check? 

Running a credit check on a tenant typically costs less than $40. This fee may vary based on the screening service used and the depth of the credit inquiry. On TenantCloud, you can do a credit check and a background check for just $39.

What are the requirements for obtaining consent to run a credit check on a tenant? 

Landlords must obtain written permission from the tenant to conduct a credit check. This consent is part of the application process and complies with the Fair Credit Reporting Act (FCRA). When you conduct tenant credit screenings on TenantCloud, this consent is handled by our system automatically.

What are the factors to consider when deciding whether to approve or deny a tenant based on your credit check? 

When deciding based on a credit check, consider the tenant's credit score, payment history, current debt levels, and any past evictions or bankruptcies. These factors indicate financial responsibility and reliability.