A tenant credit report will be one of your most valuable tools for evaluating your rental applicants’ qualifications and determining if you should approve them to live at your rental property. Learn what to look for in a tenant credit report and how to use the information to make an informed decision that will increase your rental-income and protect your investment.
You’ll find a lot of information about a renter’s financial responsibility with a tenant credit report. Kaycee Miller, from Rentec Direct, explains how to read a tenant credit report, including what information she finds most valuable when determining if a rental applicant is qualified for her rental properties.
Landlords and property managers have a legal obligation to responsibly access and read tenant credit report appropriately. This video gives you tips and best practices on what to look for in a tenant credit report and how to effectively manage your tenant screening processes.
What to look for in a Tenant Credit Report – What the Video
What to Look for in a Tenant Credit Report – Video Transcript
We all know that tenant screening is an important part of your property management best practices, but what does it take to really analyze those tenant screening reports to understand whether or not your renter is going to be qualified?
My name is Kaycee Miller. I work with Rentec Direct, and I’m also a landlord and a real estate investor. I have also been in the industry for over a decade writing about different real estate related topics with a huge focus on property management and landlord’s best practices.
Today we’re going to talk about tenant screening reports. Specifically tenant credit reports- what you need to look for and how to analyze a tenant credit background check in order to understand whether or not your rental applicant is going to be a qualified tenant.
Types of Tenant Credit Reports for Landlords and Property Managers
When it comes to pulling a tenant credit report, there are a couple different options you can use in order to find one of these reports.
There are tenant-initiated tenant screening reports and then also landlord-initiated tenant screening reports.
As part of your rental application process, on your rental application, you’re going to collect some personal information from your applicants. With this information, you can order tenant background screening reports, including a tenant credit check.
The Fair Credit Reporting Act and Tenant Credit Checks
The Federal Fair Credit Reporting Act dictates how a landlord can use the information on a tenant credit check and how they can access those reports as well. That’s why you’ll see a lot of services that are tenant-initiated.
Tenant-Initiated Tenant Credit Checks: This means a landlord invites a tenant to order their own tenant credit check on themselves and then gives the landlord access to view that report.
Landlord-Iniated Tenant Credit Checks: Other services pre-approve a landlord to be able to order tenant credit reports on behalf of their landlord operations and they go through an approval process in order to order these background checks on their rental applicants and then they can order their own reports.
Instant Tenant Credit Checks
In most cases, doing a landlord-initiated tenant screening background check is an instant process. You can put in the information and instantly get the information about your tenant’s credit history, criminal background, eviction history instantly.
With a tenant initiated background check process, the tenant has to be the one that goes in and orders the report on themselves and gives the landlord access. So that can sometimes cause a little bit of a delay in your rental application review process. I always recommend those landlord initiated background screening services like Rentec Direct.
Key Elements of a Tenant Credit Report
Now, when I’m looking at a tenant credit report, there’s some information that I like to pull and consider when looking at those tenant credit reports. The key elements of a tenant credit report include:
- Credit Score
- Types of Debt
- Total Debt-to-Income Ration
- Monthly debt payment obligation
- Payment history
A credit score gives a general idea of how financially responsible your rental applicant may be. Then we’re also looking at total debt types of debt and what their debt obligation is in terms of monthly payments and history of on-time payments and that this is all information that you can find in a tenant credit report.
Full Tenant Credit Report vs. Tenant Credit Report Card
There are a couple different types of tenant credit reports you can use for tenant screening purposes.
You can have a tenant credit report card, which is more of an overview, gives you a score range and kind of general ideas of total debt and what the monthly payment obligation is. And then you can get a little bit more detail with a full tenant credit report.
You might use a tenant credit report card if you want to just get that overview or if you want to have a, just a quick glance at your applicant’s like financial history and responsibility. But the full tenant credit report is really going to give you a fine tooth. Look at what the, not only how much debt is owed, but the types of debt.
So it breaks it down into revolving accounts like a credit card or a bank loan. And then it also could look at real estate debt or medical debt so you can kind of analyze those different debts differently.
Is all debt treated equally?
So like medical debt, sometimes those are, those bills are so expensive and so you might not think that someone is financially irresponsible if they might be late on some medical debt payments because they’re working with their insurance companies to maybe reduce those charges versus a credit card payment that a rental applicant just has missed a lot of times that might paint a different picture of the financial responsibility.
I also like to look at total debt and what the total monthly debt obligation payments are and consider that with an applicant’s income and the rental responsibility and then that monthly debt obligation payment.
If the rental amount and the total credit due each month is more than their monthly income, then that gives me an idea that maybe they aren’t the most qualified for this property.
So I’m looking at history of payments, types of debt, and total amount of credit due, and that gives me an idea of whether or not a tenant may be qualified for my rental property and if I think they’re going to be able to afford the payments for the rental property and make those payments on time.
Tenant Screening Protects Your Investment
There’s lots of information available in tenant screening reports and using all these different reports to analyze whether or not a rental applicant is going to be qualified is one of the best ways that you can protect your investment and ensure that you find a qualified tenant who’s going to pay rent on time, respect the property, maintain the rules, and ensure a great landlord tenant relationship.
My name is Kaycee Miller, I work for Rentec Direct. You can find this and more information on the Rentec Direct Blog. Come and visit me there and let me know if there’s any other questions you have about tenant screening and tenant screening reports.
