Being a self-employed landlord is challenging. Although many new landlords are still accepting application forms and collecting cash, it is far easier to utilize helpful digital solutions to handle rents more efficiently and save time for yourself.

Property management tools exist to help DIY landlords operate their rental business, from leasing property to collecting rent payments online and checking on tenant credit history. Property management software solutions have grown to help investors, landlords, and property managers keep organized, not only in the day-to-day communication and management of tenants but also in providing background and credit checks.

Background and credit checks will assist you in identifying the prospective tenants who will be capable of paying their rent on time and securing your property while sticking to the lease agreements.

What is credit history and why do landlords need to check it?

Credit history shows the length of time a person has held credit accounts. The following actions will make an impact on a person's credit history:

  • How long has been a person logged in to the recent account?
  • How old is the average credit account?
  • A prolonged time spent with credit history in a better, higher credit score.

Although a credit check is only one aspect of an applicant's past, it may provide landlords with a basic understanding of a financial situation. We highly advise every landlord to check both credit and background checks.

Payment issues were mentioned as the top worry by 84 percent of landlords. A credit check is a wise form of investigation that might show what to expect from your tenant’s financial activity.

For example, TenantCloud provides a Full Check Report package by TransUnion that includes full Credit and Background Check for 39$.

How does a landlord check a potential tenant's credit score?

A credit score is a number that credit bureaus assign to tenants based on their payment history and other data in a credit report. The credit score can vary from 300 to 850 points. The position of the number indicates the level of credit risk a person poses to lenders.

As we previously wrote, a good credit score means that a tenant is capable of paying rent. With the help of credit bureaus, landlords can understand how a potential tenant has handled payments in the past on loans, credit cards, and other items by looking at their credit records.

Good credit score
Every tenant with a credit score of 670 or higher already has a credit score complaint to the national average for Americans. A good credit score for renting will be lower than a good credit score for purchasing a property.
Because tenants do not have the credit history of making mortgage payments to increase their credit score, most landlords want a score between 600 and 650.

Low credit score
A low credit score may typically exclude an applicant from renting a property from a property management business or a DIY landlord.
But how can a landlord determine which credit scores are actually "low"?
The credit scale ranges from 300 to 850, and the general business adheres to the following guidelines:

  • 300-629: Bad credit
  • 630-689: Average credit
  • 690-719: Good credit
  • 720 and up: Excellent credit

Even though a low credit score may signal a few red flags regarding a prospective tenant, it may be in landlords' best interest to waive their credit score criteria. For example, if there are mitigating circumstances, such as a high level of competition in a neighborhood with few candidates. A landlord will have a higher chance of filling their vacancy if they are more flexible.

Credit reports. What are those?

A credit report is a document that contains details about personal credit history and current financial position, such as loan repayment history and credit account status.

The majority of people have multiple credit reports. Сredit bureaus or consumer reporting agencies gather and maintain financial information about a person that creditors, such as lenders, credit card companies, and other financial institutions, send to them. Creditors aren't obligated to report to all credit reporting agencies.

Lenders utilize these reports to determine whether or not they will lend money to a person and, if so, at what interest rates. Lenders are using credit reports to see if the person is meeting the requirements of an existing credit account.

Final thoughts.

Screening prospective tenant credit history is essential for understanding whether or not the tenant suits your vacant property and if they are possible to pay for it.

Remember that tenant screening is a time-consuming procedure. As you succeed in the rental sector, making sure you obtain the preferable tenants for your home can help you maintain your stability.