Every rental business needs an established tenant screening system.
Tenant screening is the only way to ensure your properties are filled with qualified and respectful renters. It protects your properties from damage, both physically and financially.
A thorough tenant screening includes verifying income, confirming employment, and running credit and background checks.
Credit, criminal, and eviction histories are especially critical for determining the type of renter an applicant will be. If an applicant already has a history of negligence or criminality on their record, the chances of bad behavior in the future increase.
Below is an overview of best practices for running successful credit and background checks on your rental applicants.
Credit checks are standardized reports of an individual’s credit history. They include information about open lines of credit, such as credit cards, loans, or other debt.
Credit reports usually come from one of three credit reporting agencies (CRAs): Experian, Equifax, or TransUnion. Each CRA provides the same information, so learning to navigate one credit report means understanding them all.
Understanding the Components
In every credit report, you’ll find the same five components:
- Basic Information – The first part of every credit report is basic information about the applicant. Look for the applicant’s identification and current address at minimum. You’ll also find other personal details associated with the applicant’s credit in this section, such as their birth date, spouse, or the last four digits of their SSN.
- Fraud Indicators – This section indicates whether an SSN mismatch is present.
- Tradeline Summary – This section is the most important for your purposes. It shows the applicant’s payment history for their open credit accounts, including cards and loans.
- Inquiries – A list of companies that have also recently viewed the applicant’s history.
- Credit/Resident Score – A number representing the applicant’s overall creditworthiness. A “resident score” is a specialized credit score for renters.
Interpreting Credit Scores
When you view a credit report, it may be tempting to skip right to the credit/resident score. However, this is not a good habit.
Credit scores are best interpreted in context. Don’t overlook the tradeline summary or fraud indicators, which tell you more about a renter’s credit habits than a single number can. The applicant’s income and employment are also critical factors. For example, a recent job change could explain variations in payment history.
Even an applicant with near-perfect credit might not be a great choice if their income is inconsistent and unreliable.
The term “background check” is generally used to refer to criminal and eviction histories. Both are vital reports needed to complete a full profile of an applicant.
Criminal histories are tricky because the laws governing how courts document them vary by state and county. There are also three different ways to obtain a criminal report, leading to confusion about which source to use.
County records are the most accurate and current, but they are limited to a small geographic range and take up to two weeks to acquire. State records are much faster (usually instant) but may have inconsistencies in information due to state differences. National records are also instant, plus they often bundle with the Sex Offender and Terrorist Watch Lists. However, you should expect inaccuracies due to the wide range.
Typically, a national record search is sufficient unless your rentals are in a crime-heavy neighborhood.
Like criminal reports, eviction reports also aren’t standardized. They are often only filed under the resident’s name, so look for a service that offers SSN verification to ensure the person you’re looking at is the right one.
Even one eviction on an applicant’s record is an immediate red flag. However, if the renter is an otherwise outstanding applicant (or if they claim the eviction was unjust up front), it may be worth assessing the circumstances of the eviction to confirm it was fair and warranted.
Using Software Tools
Software can help you automate much of the tenant screening process. Most property management software platforms offer tenant screening (including credit, criminal, and eviction reports) directly on the platform. Instead of wasting time independently finding all three histories, you can view a consolidated report with the relevant information organized and ready for your evaluation.
Protecting Your Properties and Your Future
It’s easy to overlook screening components when you’re eager to move in new tenants. However, only careful screening can protect your investments. Careless screening is never worth damage to your property or financial security. By diligently evaluating credit, criminal, and eviction histories, you can find trustworthy tenants to propel your business’s success.