It takes work to be a self-employed landlord. While some still prefer paper applications and cash when collecting rent, most landlords have gravitated towards practical digital solutions to save time and manage their rentals more effectively.
That's where property management tools come in! They’re designed to help landlords and property managers streamline everything from rent collection and leasing to background checks and viewing credit history. Using modern property management software keeps you organized and on top of daily communications, tenant management, and even those crucial background checks and credit checks.
While you’d like to think the majority of tenants respect their lease agreements, pay rent on time, and take good care of a rental property, the idea can often be more unrealistic than a unicorn. But you don't need to use tarot cards or a medium to know if a tenant will fulfill their agreement—just use a background and credit check to get a better idea of their previous behavior!
Here’s why running a credit history on your tenants will increase the efficiency and smoothness of your rental business. And with our screening tools, it’s easier than ordering a pizza, we promise.
What Is Credit History and Why Is It Important to Landlords?
Credit history is a timeline of how long someone has managed their credit accounts. Certain factors influence a person's credit history, such as:
- How long have they been using their most recent account?
- What's the average age of all their credit accounts?
A credit check gives an overview of an applicant's financial situation, but remember, it's only one piece of the whole picture. As experienced property managers, we recommend running credit and background checks for each applicant to avoid late rent or evictions.
Related: What Is Tenant Screening and Why Do You Need It?
Rental payment issues are the top concern for 84 percent of landlords. A credit check is not just a sneak peek of a tenant’s financial history—it’s like an entire Godzilla movie premiere, showing you exactly what to expect (the good, the bad, and the scary).
For instance, TenantCloud offers comprehensive tenant screening with three main packages: Basic Full Check Report, Basic Background Check, and Credit Check reports. This helps ensure you're well-informed about your potential tenants.
How to Run a Credit Check on a Tenant?
A credit score is a report given by credit bureaus to tenants based on their payment history and other credit data. It ranges from 300 to 850 points.
As we previously said, tenants who pay rent on time likely have higher credit scores than tenants who don’t. Landlords can learn more about prospective applicants' payment history by running a credit check using property management software or directly contacting credit bureaus.
Good Credit Score
Tenants with a credit score of 670 or higher meet the national average for Americans. There is one big BUT: the meaning of a good credit score for renting differs from what's considered good for purchasing property. Since tenants don't have a history of mortgage payments to strengthen their credit, most landlords aim for a score between 600 and 650.
Low Credit Score
A low credit score may disqualify an applicant from renting a property, but how does a landlord determine which credit scores are "low"? The credit scale spans from 300 to 850, with the following general categories:
- 300-629: Bad credit
- 630-689: Average credit
- 690-719: Good credit
- 720 and up: Excellent credit
It may sound tricky, but landlords may find it profitable to be flexible with their credit score requirements. Imagine there's an applicant—a single mom with an average credit score. Yet, she's got a steady job and outstanding recommendations from her previous landlord. And your applicant pool is limited because it's a renters market or any other mitigating circumstances. You might not have the complete picture of her situation, but it's worth considering her application given these positive aspects.
Credit Reports: What You Need to Know
A tenant credit report is a comprehensive document detailing an individual's credit history and current financial standing, including loan repayment records and the status of credit accounts.
Typically, individuals have multiple credit reports. Credit bureaus, or consumer reporting agencies, gather and maintain financial data provided by creditors, such as credit card companies. However, creditors are not required to report to every credit reporting agency.
Lenders depend on these reports for two things:
- Consider whether to extend credit to an individual and, if so, at what interest rates.
- To evaluate if individuals are fulfilling the obligations of their existing credit accounts.
Helpful Insights on Tenant Credit Check
Suppose an applicant has an outstanding medical bill or is recovering after a period of unemployment. In that case, they might have negative items on their credit report or a lower tenant credit score. Yet, they may still be a good candidate for your vacant rental property.
Here are four most common reasons why a person may not have a credit history:
- They’re young and haven’t built a credit history.
- They’re wary of banks.
- They’ve recently moved to the country.
- They’re giving you false or incorrect information.
If the tenant's credit check comes up empty - use employment verification and criminal background checks to verify the information they provided in their application. If you run a tenant credit check and they have a low score, be sure to carefully review the credit report. There is always a possibility of a mistake or things the tenant is unaware of but is willing to fix. Some good renters may have had hard times in the past but are working to improve their credit.
Before rejecting an applicant:
- Find out what steps, if any, they’re taking to improve their credit.
- Look at their credit report to see their previous rental history.
- Call their previous landlord (with the applicant’s permission).
- Consult a legal professional to make sure you’re not violating any laws by rejecting the applicant.
TenantCloud Tenant Screening Report
Now that we've reviewed the importance of tenant credit history, let's explore the TenantCloud tenant screening service. Tenant screening reports contain various parts crucial for evaluating potential tenant suitability, and offer access to:
- Credit Checks: Evaluate an applicant's financial responsibility and discover their credit score, outstanding debts, and payment history.
- Background Check: Ensure tenant credibility and review criminal records, past evictions, and other red flags.
- Rental Payment Histories: Gain insights into a prospective tenant's rental payment history and assess their trustworthiness.
- Eviction Records: Identify any past evictions or legal disputes related to rental properties. Understand a tenant's eviction history to minimize potential rental risks.
Tip: With TenantCloud, you can request a screening report without requiring a rental application. In the blink of an eye, you can access all necessary tenant information at the click of a button.
Learn more: Can I still request a screening if a tenant does not apply online?
Tenant Background Check & Credit Check
If you are a DnD fan (Dungeons and Dragons, for those unfamiliar), you probably know that strategy is key. The same goes for landlords; nothing beats a thorough background and credit check. These reports open all hidden stats of an applicant, giving you a crystal view of their credit information, including credit scores and payment histories. This enables landlords to assess an applicant's financial trustworthiness. The rental history section offers insights into the applicant's past rental behavior, including any past evictions or late payments.
Income Insights Report
Furthermore, as part of the tenant screening process, you have the option to order an Income Insights report for just a $6 add-on fee. This report helps you verify whether the income details provided by rental applicant align with the information reported in their screening.
County Search Add-On
A County Search is a specialized background check that provides detailed criminal records at the local county level. Unlike national database searches, which may not capture all local criminal activity, a County Search delves into specific county jurisdictions where most criminal records originate. This localized approach offers landlords more accurate and detailed information, including convictions, active warrants, pending court cases, and other criminal offenses.
Read more: What Are Local County Screenings?
Why is a County Search an absolute must-have for landlords?
Are you a fan of true crime? We are. If so, you already know why a County Search is a must. It provides invaluable insights into a potential tenant's background, allowing landlords to manage risks effectively. You definitely want to know who you're welcoming into your rental property, and that's where checking for any criminal history becomes important. Moreover, a County Search often brings you skeletons in the tenant's closet and digs out critical details that might slip through the cracks of generic national database searches.
Integrating the County Search add-on into your tenant screening process is a proactive measure to improve the security of your rental properties. It allows landlords to identify potential red flags and safeguard their real estate investment effectively.
Ongoing and Historical Rent Reporting
Rent reporting isn't just a cool-sounding alliteration—it's a powerful tool that can help tenants build their credit scores using their rent payments. By reporting ongoing rental payment history to credit bureaus in TenantCloud, tenants have a Power Ranger-like ability to establish a positive payment history and build creditworthiness. With historical or back rent reporting, tenants can report up to 24 months of their previous rental payments, likely giving their credit score a major one-time boost.
With rent reporting, tenants have the opportunity to show consistent payment behavior over an extended period and get rewarded for it. It’s a win-win for both landlords and tenants, not only for promoting on-time payments but also empowering tenants to take control of their financial future.
Related: Boosting Credit Scores: The Importance of Rent Reporting for Tenants and Landlords
Final Thoughts
Screening a prospective tenant’s credit history is essential for understanding whether the tenant is the right fit for your vacant property and shows whether they can afford the rent payment or not.
Remember that tenant screening is a time-consuming procedure. As you continue to grow and succeed in the rental market, make sure you find the right tenants for your property to maintain your stability.
