A tenant credit check is one of the most important things that you—as a property manager or landlord—can do. Doing so can help you minimize the risk that a tenant will not pay his or her rent. While the past may not be an indicator of future performance, it certainly can be used to judge the financial soundness of any potential tenant.
Plus, running credit and background checks on every possible tenant is a sound strategy for avoiding charges of discrimination. For example, if you run credit checks on all potential tenants without deviation, how can anybody accuse you of being unfair or discriminatory in this regard?
There are three credit reports you can get and one FICO score. The three credit bureaus are TransUnion, Experian, and Equifax. Each of these reports ought to have the same information on them; however, they don’t. Businesses often report to only one or two of the bureaus, causing different data to be reported on different reports.
However, if you take the data contained in the sum of the three reports, you will get a more complete history of an applicant’s credit history. It is more costly to pull 3 credit reports, however, so weigh the benefits against the costs. In many cases, the prospective tenant will be bearing the costs of the credit check, so you may find it beneficial to pull only one report.
One of the things you should be looking for in a tenant credit check are a history of paying bills on time. A rental applicant who has a history of paying his bills on time is one of a landlord’s most cherished tenants. It is no fun trying to collect back rent from anybody; however, collecting rent from a perpetually tardy tenant can be frustrating and costly.
Late rent is one of the primary causes of eviction. Evictions are a process and they can be extremely costly and complicated. It is better to find out before you rent to somebody that he or she has a proclivity to miss rent payments rather than after you have signed a long-term lease with him.
Delinquent debts are a sure red flag that your potential tenant has a problem paying his bills. Therefore, you may find that if you rent a unit to this particular applicant you have serious problems collecting rent. Again, do not ignore this warning sign.
When it comes to choosing which of the three credit reports to pull, it is usually left up to your service provider. It is not cost-effective to pull all three credit bureau reports so you will want to pull only one, maybe two at the most.
More often than not, even if it is missing data, a credit bureau report will reveal underlying issues. Remember, the purpose of a credit check is not necessarily to disqualify an applicant; rather, tenant credit checks are a way for you to reveal potential pitfalls when evaluating a potential tenant.
Source : fidelisam