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ContinueThe best way to assess a rental applicant is to get a tenant credit report as part of your application and tenant screening process.
Your choice of tenant can mean the difference between dealing with problems like late payments almost every month — potentially even an eviction — and a stress-free experience where you’re able to earn a ‘passive’ income.
There are several ways to assess a rental application, but one of the most important is to request a tenant credit check as part of their tenant screening report. This gives you a better picture of the applicant’s financial situation, and it’s one of the best ways to determine if a tenant is likely to pay rent on time.
You want to be upfront about whether you will be running a credit check, and may even want to include this in your rental listing to prevent applicants who won’t qualify from even applying.
Related: How To List A Property For Rent: A Landlords Guide
Running a credit report for renters is one of the crucial steps in searching for the ideal tenant (you can check out the others in our article on how to find good tenants). A credit report will tell you crucial information about applicants, including their credit scores, whether they have a history of making late payments, and what their debt situation is like.
All these details are key indicators as to whether an applicant is likely to make timely rent payments, whether they can afford your property, and if they are at higher risk than average for being evicted.
To conduct tenant credit reporting, you’ll need some basic information about the applicant. This usually includes the person’s full name, Social Security number, date of birth, and former addresses. In addition, you’ll need the renter’s permission to run the check, which requires gaining written consent. You must confirm that you’ll only be using the report for the rental application and you may need to verify that you are a landlord, depending on the service you use.
There are several places to check credit report history, the three main credit bureaus are:
You can also use purpose-built tenant screening services like Landlord Studio and get a tenant credit report as part of the application process. These services aim to streamline the process you can get all the information you need to make an informed decision as fast as possible.
Note: As a landlord, you cannot use credit check tools designed for consumers to check their own scores.
The easiest way to check a tenants credit is to run a full tenant screening reports with Landlord Studio. The Landlord Studio tenant screening report uses TransUnion, and has three parts to it. A full tenant credit report which includes a Resident Score, SSN verification, and a full credit history. A rental history and eviction history check, as well as a background and criminal check.
To run a screening a report on your applicant create your free Landlord Studio account or log back in today. Then simply navigate to the screenings tab to begin a new application and enter the tenant's email address.
View a sample tenant credit report
Running a tenant credit report can cost anywhere from $15 to $60 or more. The price is dependent on the platform you use, your states rental application fee laws, and the fullness of the report. With Landlord Studio full tenant screening reports, including a comprehensive tenant credit check and background check and eviction history cost $45 (for PRO users) and $55 (for GO users).
The good news for landlords is, if you use Landlord Studio, you can pass this fee onto the applicant, or if you choose, cover the cost yourself.
Before you request a credit check from your tenants you must first get the applicant’s written consent. This is part of the FCRA guidelines designed to help protect consumer data and privacy and ensure the credit check is solely used to determine their eligibility for your rental property.
Generally, if you use a tenant screening service this permission will be collected as part of the flows making it simple for both parties.
There are two types of credit scores. Most landlords use the FICO score, but you can use VantageScore if you prefer. Both range from 300 to 850. The higher a tenant’s credit score, the lower the risk for you.
It’s important to know what exactly a particular score means and to think about what threshold you’ll want from applicants for your property. There may be no need to find tenants with exceptional credit scores, but you’ll likely want at least a “good” score.
On the Landlord Studio report the credit score appears as a Resident Score. This is a proprietary score developed by TransUnion which adds more emphasis on rental history and on time rent payments. This means there may be a slight difference between a tenants Resident Score and a pure credit report.
This is the absolute best credit score. People with a score in this range gain the lowest interest rates on loans, credit cards, and lines of credit because they have proven to be responsible with their finances.
The risk of someone with a score in this range missing a payment is low, as they have no late payments in recent history. These consumers find an approval for credit easy and are the most desirable tenants in terms of credit history. Around one-fifth of people have a score in this range.
You’ve also found a potentially great tenant if an applicant has a credit score between 700 and 799. People with scores in this range have a history of being financially responsible in most of their monetary decisions, including managing credit. They will have made most payments on time and their credit card balances will be a low percentage of their total credit limits. Since one-quarter of people are rated “very good” in terms of credit, it may not be difficult to find tenants with a score of at least 700 if you have a desirable property.
It’s best to find tenants with scores no lower than what is considered “good”. A fifth of people fall into this category. Consumers with scores between 650 and 699 can often receive competitive interest rates, although they are less slightly desirable as clients and tenants than those with a score of at least 700. Before accepting a tenant with a score in this range, you’ll need to use other aspects of the renter’s credit report to determine the risk of missed payments.
Credit scores in the “fair” range may be deemed slightly risky. Consumers with a score between 600 and 649 tend to have faced some issues in the past (which you’ll notice when assessing their credit history), although nothing major. Accepting an applicant will put you at a high chance of missed rent payments. You will want to assess additional factors before accepting a tenant with a credit score in this range to better understand why it’s lower and the associated risk of renting to this tenant. The good news is only about a tenth of people are in this range, meaning you should be able to find applicants with higher scores, especially if your property is in an area with a reasonably high demand for housing.
A final quarter of people have scored in the lowest range: from 599 to 300. Consumers often receive such scores if they have defaulted multiple times on various credit products from different lenders. Alternatively, a person will have a poor score for seven years after Chapter 13 bankruptcy and for 10 years after Chapter 11 bankruptcy. There is a significant risk of facing late or missed payments if you accept a tenant with a credit score of less than 600.
Beyond the credit rating, there are several things to look for in a credit report.
Start with an overview of the renter’s credit report. Double check the applicants personal information and ensure all the information on the credit report matches the information on their application.
Next take a look at their credit score. Does it meet your minimum requirements and is there anything that requires a deeper look at.
Check for any negative signs that indicate a history of financial problems. This includes previous car repossessions, garnishments, liens, and accounts in collection.
The next stage in a credit check for landlords should be to examine how much the applicant has been using credit. This appears under credit utilization. It represents the amount of credit owed compared to the person’s credit limit and appears as a percentage. When this rate is low, it implies that the applicant is not overspending — although it is important to note that credit utilization only includes revolving credit and not installment loans, such as a car loan.
Both FICO and VantageScore recommend a credit utilization rate of less than 30 percent. Therefore, applicants with a higher rate than this are likely to also have worse credit scores. However, there is sometimes a delay in credit utilization impacting credit scores, since credit card companies don’t always update balance information with credit reporting agencies immediately. It’s for this reason that checking credit usage gives you a better overall picture of applicants than considering credit scores alone.
You are able to see an applicant’s payment history if a previous landlord reported this information to a credit bureau - though not every landlord will report these payments.
It’s important to know what debt a tenant has to see if the applicant will be able to afford rent payments in addition to other financial obligations.
Beyond looking at the total, consider what kind of debt the applicant has. For example, large amounts of credit card debt across multiple cards may be a red flag, whereas debt attributed to student loans tends to be more normal.
Looking at whether the tenant has a habit of missing or being late with debt repayments could be a re flag. If an applicant’s credit history shows a pattern of late payments, there may be a high risk that you’ll be waiting for rent payments for some months. This can have a major impact on your own financial situation. Plus, if the tenant is responsible for paying utilities, the last thing you want is for a service to be cut off due to a late payment.
A typical renter credit report will cover 7 to 10 years. This gives you a useful overview of an applicant’s long-term financial history.
One thing to look out for in an account history check is bankruptcy status. A bankruptcy record provides you with details including the accounts and companies involved. You may like to consider an applicant who has a discharged bankruptcy, provided all other aspects of the credit check are acceptable. However, someone who has a pending bankruptcy is a high risk, as the applicant could be relieved of all financial obligations, which includes any rental payments still due.
Finally, you’ll want to verify that the applicant has sufficient income (normally 3x the rent amount) to afford rent on top of other commitments. There are several ways to verify income, including tax returns, bank statements, pay stubs, or a letter from an employer. Make sure you consider all of the applicants income streams including housing vouchers.
With the income verified and the credit check you can then calculate the applicant’s rent-to-income ratio. You do this by dividing the cost of rent (and other outstanding debt repayments) by the renter’s gross income.
A tenant credit check to gain a clear picture of an applicant’s financial situation and history, as this is the best indication of how a tenant is likely to behave in the future. Make sure to check all the above criteria to consider the credit report from all angles so that you can make the best decision as fairly as possible.
There may be times when a rental applicant wants to provide their own report, rather than pay for an additional report using your tenant screening service. If they're applying for multiple properties this can be a good way for them to reduce costs. Certain states do require landlords to accept a credit report a tenant has provided (including Colorado, Maryland, and Rhode Island). Generally speaking the report must be no older than 30 days (90 days for Rhode island), and it should come from a reputable credit bureau, such as TransUnion, Equifax, or Experian.
It’s important to refer to your local landlord-tenant laws and Federal Housing laws prior to accepting or denying their credit report.
The best way to get a credit check is to use a tenant screening service like Landlord Studio. Landlord Studio allows you to streamline the entire tenant selection process, from listing and syndication to lead management to running a tenant screening report.
With the Landlord Studio tenant screening report you’ll receive a rental history and background check in addition to the full credit report. It is free for landlords. Once the tenant submits and pays, the report will be ready to review in the Landlord Studio app in minutes.
Learn more about screening tenants with Landlord Studio
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