How to Check a Tenant’s Credit [What to Look for When Running a Credit Check]

Running a credit control on a prospective tenant is a crucial step to consider in the tenant screening march, as it can be the remainder between getting a good or a not-so-good tenant .
Use of a credit composition can help a landlord reach a more holistic view of their prospective tenant ’ s fiscal behavior and discipline. According to a TransUnion sketch, tenant payment problems ranked as the act one concern for 84 % of landlords, which is no surprise when the average cost of eviction due to the evasion of rend is $ 3,500 and can take 3-4 weeks .
The information that is provided in a credit report could foreshadow the likelihood that your prospective tenant will pay rent on prison term. Unlike large apartment complexes who can absorb an eviction and still hit their buttocks line, freelancer landlords, who own 1-4 properties, probably can not afford an eviction, former paying renter or other bad lease result that results in an unanticipated tenant upset .
That ’ randomness why it ’ second crucial to consider utilizing a citation report to help place the mighty tenant in your rental property from the beginning.

Let ’ s take a look at what you can learn from a recognition report, tips on how to read it, and examine how this information may give you insights to help select a quality tenant for your rental property .

Why should I run a credit history check?

Running a credit rating check can allow landlords to dig deep into an applicant ’ sulfur fiscal history .
Checking a prospective tenant ’ mho credit can give you the insights needed to make a intelligent rent decision. If a prospective tenant has a full citation history and systematically makes their payments on time, then chances are they ’ ll yield rent on time. If their credit report shows choppy payment history, then this past demeanor could reflect future behavior, and this may indicate that you need to do more investigation before signing a rental agreement .

What can I learn from a tenant credit check?

There ’ randomness plenty of cognition to be gleaned from a prospective tenant ’ s credit check. Depending on the type of accredit check you run, a citation report may provide information spanning back 7 to 10 years .
Information in credit reports spans back 7 to 10 years
When reviewing an applicant ’ sulfur credit report, you may discover the comply :

  • Identity Verification: Credit reports can help you verify a tenant’s identity by confirming their name, address, date of birth, and employer.
  • Credit History: A credit report can provide insight into an applicant’s payment patterns. As mentioned earlier, landlords reported that payment problems as their number one concern about new tenants, so ensuring an applicant regularly makes payments on time is crucial. A credit report may also list bank accounts, show an applicant’s credit accounts, and disclose loan amounts that are under their name.
  • Public Records: A credit report may shine light on any evictions, bankruptcies, tax liens or judgments against the prospective tenant, which could be indicators that they may not the right applicant for your rental property.
  • ResidentScore: With a TransUnion SmartMove credit report, you receive a ResidentScore. This is a type of credit score that TransUnion developed specifically for the rental industry. ResidentScore uses over 100 different data points and is based on actual rental outcomes. It has shown efficacy to predict evictions 15% better than a typical credit score and assigns a score from 350-850, with 850 being the best score possible. A higher ResidentScore can indicate that the applicant is of higher-quality, while a lower score could indicate higher risk. Where the applicant’s score falls on the scale can help you better assess their risk.

What should I consider in a tenant credit check?

When you complete a tenant credit see, the information you receive may help guide your decision of whether to rent to an applicant .
As you examine a credit report, there are respective red flags to consider :

  • Late payments: First, consider how the applicant handles their payment responsibilities. Do they pay their bills late? If so, how late are the payments and how often do late payments occur?

Why it matters: According to CitiGroup, more than half of Americans have paid a bill late. While it ’ s fair to recognize homo error, if their credit reputation shows a consistent blueprint of late payments, then this could be an index that they will fail to pay rent on time or at all .
Significant amounts of debt: The likelihood of renting to a tenant with no debt is slender, particularly in today ’ s economy. According to USA Today, here ’ s how much debt the median U.S. family owe in accredit cards, car loans, scholar loans and mortgages :

  • Credit cards: $16.8K
  • Auto loans: $29.5K
  • Student loans: $50.6K
  • Mortgages: $182.4K

Chart showing average U.S. household debt
While your applicant may have debt, a credit check can help you determine if they are responsibly handling their monthly payments .
To note: keep in beware that if your prospective tenant is carrying a great deal of debt, then the loss of a job or an unexpected illness could make it identical difficult for them to handle their bills in the future .
Why it matters: If the monthly payments on their debt accounts are excessively high, then it could prove challenging for a prospective tenant to pay rent systematically each calendar month. The last thing a landlord wants is for their tenant to overburden with debt and be in a side to have to ask the question of “ which payment is more authoritative ? ”
Pro-tip: To help better assess your prospective tenant ’ mho income, landlords can use Income Insights, a SmartMove tool that analyzes the applicant ’ randomness self-reported income by using data from the credit report, including an analysis of how much they pay toward balances, the total of money they spend, and the types of balances they carry among other factors. Income Insights compares this accredit demeanor to the applicant ’ mho self-reported income to determine whether extra income confirmation is recommended .
Another standard to determine an applicant ’ south ability to pay rent is based on some simple mathematics. Calculating the rent-to-income proportion can help to provide a agile view about the applicant ’ second ability to afford the economic rent. What is a good ratio ? by and large speaking, tenants who make three times income compared to rent is considered adequate, but you should of run decide for yourself. eminence : this rule of hitchhike may vary by location .

  • Public records: A credit report may show if your prospective tenant has any derogatory credit marks in his or her past, including collections, civil judgments, or bankruptcies.

Why it matters: If your prospective tenant has many collection accounts and judgments, then it may demonstrate that they ’ re not financially responsible – which could indicate they won ’ t be responsible with rental payments .

  • Credit history: The way your tenant uses credit can be telling. Gaining insight into a tenant’s overall credit history can help you determine if they’re likely to pay their rent each month.

Why it matters: While a blemish history of credit ( signaled by a bad credit rating score ) doesn ’ t inevitably mean they ’ ll be a badly tenant, it may serve as a good indicator of a tenant ’ s ability to pay their rent in a timely manner. It may be worth it to look for a prospective tenant that has a healthy credit rating history .

Tips on how to run a credit check?

There are a variety of ways to run a credit check on a prospective tenant :

  1. Ask your applicant to provide their own credit report: Some landlords prefer to ask tenants to pull their own credit report. However, this may not garner the best results. Because tenants can generally only pull one free copy of their credit report annually, the information they provide may be outdated. Additionally, an applicant may technically be able to digitally alter their credit report and manipulate information contained within, which then gives you a false representation of who is really interested in your rental unit.
  2. Access reports directly from a credit bureau: Property management companies can use a prospective tenant’s application to pull a credit report directly from a credit reporting agency. However, independent landlords may not have this access or may need to go through a rigorous on-site inspection process in order to gain access.
  3. Use an FCRA-compliant online tenant screening service: One of the easiest and most efficient ways to view your tenant’s credit report is through an online tenant screening service like TransUnion SmartMove.

SmartMove empowers the applicant to share their data when they want, and with who they want in a secure room. It uses a credit “ push ” alternatively of “ pull ” method acting. With a credit push, the tenant authorizes access to their own citation report, then “ pushes ” it to the landlord. In the casing of SmartMove, this by and large results in a voiced question on the applicant ’ s credit report which typically doesn ’ metric ton affect the calculation of certain credit scores, such as ResidentScore .
Diagram describing SmartMove credit push
ResidentScore was created specifically for the lease industry and is calculated using a sophisticated formula that analyzes a prospective tenant ’ s recognition report. ResidentScore predicts eviction more frequently in comparison to a typical citation score in the bottomland 20 % score range where risk is greatest. Your applicant ’ mho ResidentScore is calculated on a roll of 350 to 850 ; where they fall on that plate can help you determine the risk of renting to them .
It ’ south easy to run a tenant credit check with SmartMove. Sign-up is free and the serve is firm and done all on-line. All you need is your applicant ’ mho electronic mail address and we ’ ll do the lie. Once you ’ ve provided their e-mail information, we ’ ll send them your request for a credit check. With their approval, we can gather data from TransUnion ’ s robust databases and early sources to send all-important information to the screener. In a matter of minutes, the landlord receives comprehensive examination and compliant accredit, criminal, eviction, and Income Insights reports plus their ResidentScore .

Tips on how to read a SmartMove credit report

It ’ sulfur significant to understand how to read a citation report because it ’ randomness one of the best ways to get an idea of how a prospective tenant handles their fiscal responsibilities. Which could be a strong indicator of tenant payment dependability .
A citation report contains detail information about by and present credit accounts. It identifies accounts in good standing and accounts that are late. It will show history balances ascribable and payment history. The report besides calls out negative accounts with late payments, or debts significantly in areas that have been sent to a solicitation means .
We ’ ll walk you through the kinds of information contained in a SmartMove credit reputation .
The main parts include :

  1. Identifying information
  2. Profile summary
  3. ResidentScore
  4. Tradelines
  5. Collections
  6. Inquires

Basic Identifying Information

Basic Identifying information smartmove credit report
In this segment, you can determine at a glance whether the applicant ’ s information ( name, current address, late employment history ) on the credit rating report is the same as that included on their lease application.

This basic information can help to provide greater certainty that your prospective tenant is who they say they are .

Consumer Credit Profile Summary

Consumer credit report profile
This area of the applicant ’ s credit report is important because it provides an overall compendious of the activity on file. It delivers pertinent information sexual intercourse to your applicant ’ second consumer recognition profile. It ’ south broken into digestible parts to appraise overall fiscal health and measure factors such as : payment history, debt-level and monthly fiscal obligations .
In top segment, you get a snapshot of :

  • Total number of tradelines, which is the sum of revolving, installment, mortgage and open accounts
  • Total number of public records
  • Total number of accounts sent to collections
  • Total number of inquiries

In the section below, you get a snapshot of delinquency :

  • Total number of derogatory credit accounts
  • Total number credit accounts that have historical derogatory information
  • Total number of derogatory occurrences

In the chart, you ’ ll get more detailed accredit history information broken out by account type :

  • Total number of accounts
  • Highest amount owed on the account
  • Maximum amount of credit approved by the lender
  • Amount owed as of the date of the credit report
  • Amount past due as of the date of the credit report
  • Amount due monthly based on payment terms
  • How much credit is available for revolving accounts

ResidentScore

smartmove credit report resident score
When evaluating a prospective tenant, many landlords agree that their top priority is to gain more assurance that they can get a credit-worthy tenant who will pay the rent on time. A TransUnion survey found that payment problems ranked as the top concern by 84 percentage of autonomous landlords. They have commodity reason to be concerned : the cost of eviction resulting from nonpayment can run up to $ 10,000 ( or more ) in court costs and legal fees, not including the time and expense to fill an unexpected vacancy .
To that end, landlords have looked at their prospective tenant ’ second citation score as a radio beacon to determine the grade of risk before signing a rent. SmartMove delivers a proprietary ResidentScore to screeners, which is a credit score built specifically for the lease industry .
At foremost glance, a typical credit rating mark and SmartMove ’ s ResidentScore might appear similar. Both a typical credit seduce and SmartMove ResidentScore can help minimize risks when screening an applicant. And ResidentScore besides uses the lapp count scale as with a generic grudge : 350-850. however, ResidentScore is built specifically for rental screen and is powered by analysis off of over 500,000 actual house physician records. It ultimately provides a more accurate assessment of gamble for your future lease property income than a typical citation score .
Below are the benefits of ResidentScore over a standard citation mark :

  • Identifies 15% more evictions
  • Determines 19% more skips than other typical credit scores
  • Scores more applicants who have thin files (can score all applicants with at least one account on their credit report)

With ResidentScore, you get a custom-made score that is customs to your needs. You aren ’ deoxythymidine monophosphate stuck basing your decisions on the same algorithm that a depository financial institution would use to determine an result of a loanword. alternatively, you ’ re using a mark thatspecificallyanalyzes predictors of a bad rental consequence .

Tradelines (credit account history)

smartmove credit report tradelines section 1 smartmove credit report tradelines section 2
Tradelines, an industry term to describe consumer accounts, including citation accounts or lines of credit, is data that ’ mho reported to consumer coverage agencies and will appear every time you read a TransUnion credit report .
The tradelines compendious is another significant area because it provides an overview of versatile kinds of citation accounts : revolve, mortgage, episode, open and closed. These accounts include car loans, home loans, credit cards and other kinds of credit lines, in accession to other debt obligations of the consumer .
You ’ ll be able to review information, such as :

  • Account name
  • Account type
  • Credit balance
  • Credit limit
  • Who is responsible for paying
  • Payment status
  • Date of delinquency
  • Date account was opened
  • Date account was closed

These tradelines help you develop an overall picture of fiscal responsibility. You can review whether the applicant carries a high debt load and how leverage an applicant is .
Tradelines besides show current and past payment history, along with whether payments are being made on time. If payments have been received late, it ’ second described in more detail in buckets of 30, 60, 90, 120, or 180 days .
If a creditor determines they ’ re improbable to be paid, other kinds of payment statuses will be noted. Tradelines payment history calls out derogative accounts, which can be defined as accounts significantly recently for payment and the creditor determined that the consumer is in default option. derogative accounts stay on a credit report for seven years or longer from the latest action date and may include foreclosure, charge-offs, and accounts reported or sent to debt collectors .

Summary of Collections

SmartMove Credit Reprot Summary of collections
This section indicates when an bill becomes importantly delinquent and is another key aspect when learning how to read a credit report. This department includes accounts a creditor has sold to a professional collection means. The collections section reports on unbarred debt, including accredit cards and early kinds of personal loans. solicitation information is retained on an applicant ’ sulfur credit report for seven years from the first delinquency date .
solicitation information that you ’ ll be able to review includes :

  • Name of collection agency
  • Account type
  • MOP (Manner of Payment) code and status
  • Debt collector status of collection
  • Original creditor

besides included in this section is the original poise of solicitation and current come in dollars owed as of the date verified .

Inquiries

This section displays which companies have viewed the consumer ’ south credit rating file during the last one to three years, depending on the rationality of the question and geographic placement of the applicant. It besides shows the date when inquiries occurred. This helps you get a feel of the applicant ’ randomness citation activity and inquiries. The sample recognition report above shows six hard inquiries that occurred over 10–11 months. In general terms, consumers who accumulate a big number of inquiries over a short menstruation of meter could present an exalted flat of risk. They ’ re potentially getting access to extra lines of credit rating and possibly overextending their fiscal limits .

Can I reject a tenant based on their credit report?

As you can see, a credit report can provide a wealth of information that can help you to make a intelligent decisiveness. If you should decide not to rent to person because of data reported in their credit rating determine then you must adhere to applicable laws, including that you must follow FCRA regulations .
1 in 8 people surveyed with poor credit cite “errors on my credit report” as the reason for poor credit history.
When you use SmartMove to screen your tenants, you can be evening more confident that the credit report ( and other tenant screening reports ) are FCRA-compliant and control data that you can trust. SmartMove tenant credit reports are provided by TransUnion, a entrust party with over 40 years of experience in the consumer report industry. SmartMove credit checks will provide you with the accurate insights toward making intelligent lease decisions .

Final Notes

To mitigate the risk of lost or late rent payments, a costly eviction, and unanticipated tenant employee turnover, it ’ sulfur significant to consider performing credit rating checks on prospective tenants.

SmartMove is an easily and cost-efficient screen solution for mugwump landlords who want to get detailed information to make more inform screening decision without sacrificing time or accuracy .
By conducting a exhaustive tenant screen and using a accredit report card with a ResidentScore, you can better assess the risk of renting to an applicant, and use their fiscal history to help guide your renting decision .
screen with smartmove to today link

reservoir : https://www.peterswar.net
Category : Finance

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