Summary:
- Running a credit check on a prospective tenant can be a crucial step to consider in the tenant screening process, as it can be the difference between getting a good or a not-so-good tenant.
- Included in every SmartMove package, our Resident Score helps predict eviction 15% better than a traditional credit score alone and is specifically designed to help landlords estimates the risk of evictions or skips.
- Resident Score helps predict future evictions 15% better than a general score alone.
- With SmartMove’s Credit Screening you can see your future tenants credit situation to help you make informed leasing decisions.
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To see the whole terrain, you want to move to higher ground. Similarly, to get a fuller picture of a potential tenant’s financial situation, you want to get a tenant credit report. This is because information in a credit report may help you predict if your prospective tenant will pay rent on time.
It’s no surprise that payment problems are a major concern for landlords. After all, according to SmartAsset, an eviction can cost between $1,000 and more than $5,000 depending on a number of factors; including court costs, locksmith fees, property damage, property turnover and more. Plus the potential time, stress and headache involved.
Large apartment complexes can absorb an eviction and still hit their bottom line. However, independent landlords, who own only 1-4 properties, likely cannot afford an eviction, late paying renter or other bad rental outcome that results in an unforeseen tenant turnover.
That’s why it’s important to get a credit report from a professional background check company like SmartMove®. A credit report can help you make an informed leasing decision to aid in placing the right tenant in your rental property from the start.
Below, you’ll discover how to get a tenant credit check, what you can learn from this information, tips on how to read a tenant credit check, and how this information may give you insights to help select a qualified tenant for your rental property.
Here’s what the article includes:
Why should I run a credit history check on potential tenants?
Running a credit check allows you access to an applicant’s financial history.
Checking a prospective tenant’s credit may give you the insights needed to make an informed leasing decision. If a prospective tenant has a good credit history and consistently makes their payments on time, then chances are they’ll pay rent on time.
On the other hand, if their credit report shows choppy payment history, then this past behavior may indicate future behavior. A colorful credit history may signal that you may want to do more investigating before signing a rental agreement.
What can I learn from a tenant credit check?
There’s plenty of knowledge to be gleaned from a prospective tenant’s credit check—especially recent activity. According to Investopedia, most negative hits show up on credit reports for 7 to 10 years.
But, what can you learn from a tenant credit report? According to financial site The Balance, when reviewing an applicant’s credit report, you may discover the following:
- Identity Information: Credit reports can help confirm a tenant’s identity by confirming their name, address, date of birth, and known employer
- Credit History: A credit report can provide insight into an applicant’s payment patterns over the last two years. 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 civil judgments against the prospective tenant.
- Resident Score®: Exclusive to SmartMove, Resident Score is a proprietary scoring system that helps predict evictions 15% better than traditional credit scores alone. Resident Score is specifically designed for the rental industry.
Pro Tip:
Are you charging the right amount in rent to begin with? Learn how to determine fair market rent to be both attractive to tenants and in a position to make rental income.
What should I consider in a tenant credit check?
When you complete a tenant credit check, the information you receive may help guide your decision of whether to rent to an applicant or not.
As you examine a credit report, there are several things to look for in a credit report. These include:
- 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?
According to money site NerdWallet, about 37% of Americans have paid a fee for late bills in the last year. While it’s reasonable to recognize human error, if their credit report shows a consistent pattern of late payments, then this could be an indication that they might have a difficult time paying rent on time.
- Significant amounts of debt: The likelihood of renting to a tenant with no debt is slim, especially in today’s economy. According to The Motley Fool, the average American household is $104,215 in debt. Where would your rent payment fit in those demands? While your applicant may have debt, a credit check can provide you with information that may help you determine if they are responsibly handling their monthly payments.
If your prospective tenant has a lot of debt, then the loss of a job or an unexpected illness could make it very difficult for them to handle their debt in the future.
The last thing a landlord wants is for their renter to be overburdened with debt and in a position to decide “which payment is more important?”
Pro Tip:
In addition to a credit check, Income Insights helps you confirm that your applicant’s reported salary matches what they put on the rental application. This may help you decide if additional income verification is needed.
- 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.
If your prospective tenant has many collection accounts and judgments, then it may demonstrate that they’re not financially responsible.
- Credit history: The way your tenant uses credit may be informative. Checking a tenant’s overall credit history can help you determine if they’re likely to pay their rent each month.
While a blemished history of credit (signaled by a bad credit score) doesn’t mean they’ll be a bad tenant, it may serve as a good indicator of a tenant’s ability to pay their rent in a timely manner.
Pro Tip:
To help make leasing decisions, it’s important to know where your own standards sit. Discover if your rental criteria is too strict.
Considerations for running 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, tenants generally only have the ability to pull one free copy of their credit report annually so they may provide an outdated credit report.
2. Access reports directly from a credit bureau: Some 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. On the other hand, independent landlords can use SmartMove at any by creating a free account and start requesting screenings immediately.
3. Use a fast, reputable online tenant screening service: One of the easiest and most efficient ways to view your prospective tenant’s credit report is through an online tenant screening service like SmartMove.
SmartMove empowers the applicant to complete the screening request, authorize SmartMove to complete the credit report, then “push” it to the landlord.
With SmartMove, this generally results in a soft inquiry on the applicant’s credit report which typically doesn’t impact the calculation of certain credit scores, such as Resident Score.
Resident Score was created specifically for the rental industry and is calculated using a formula that analyzes a prospective tenant’s credit report. The final result is a numerical score from 350 (worst) to 850 (best) that may help you estimates the risk of evictions or skips. How a SmartMove Credit Check Works
It’s easy to run a tenant credit check with SmartMove. Account sign-up is free. The process is fast and entirely online. Here’s how it works:
- You create an account and enter your potential tenant’s email address
- SmartMove sends your potential tenant a request for a credit check
- Once your potential tenant completes the request and agrees, reports are run instantly
- In minutes, you receive reports like a credit check, previous eviction checks, criminal record report, Income Insights, and Resident Score.
Reading a SmartMove credit report
It’s important to understand how to read a SmartMove credit report because it’s one of the ways to get an idea of how a prospective tenant handles their financial responsibilities.
A credit report contains detailed information about past and present credit accounts. It identifies accounts in good standing and accounts that are late. It shows account balances due and payment history. The report also calls out negative accounts with late payments, or debts in areas that have been sent to a collection agency.
Below, you’ll find the kind of information contained in a SmartMove credit report.
The main parts include:
- Identifying information
- Profile summary
- Resident Score
- Tradelines
- Collections
- Inquires
Identifying Information
In the identifying information section, you can review whether the applicant’s information (name, current address, recent employment history) on the credit report matches what’s on their rental application.
Consumer Credit Profile Summary
This credit profile provides an overall summary of the activity on file and contains information about your applicant’s consumer credit profile. It’s broken into digestible parts to appraise overall financial health and evaluate factors such as: payment history, debt-level and monthly financial obligations.
In top section, 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 derogatory items:
- Total number of negative tradelines
- Total number of tradelines with any historical negatives
- Total number of occurrences of any historical negatives
In the chart, you’ll get more detailed credit 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 percentage is available for revolving accounts
Resident Score
When evaluating a prospective tenant, you want to know that they can afford the rent. Traditionally, landlords have used a credit score to help determine the level of risk before signing a lease. However, a traditional credit score is meant for situations where someone is borrowing money, such as when they’re buying a car or house. It is not always the best predictor of rental outcomes.
Thankfully, SmartMove’s Resident Score is built specifically for the rental industry. It is designed to help landlords estimate the risk of evictions or skips.
At first glance, a typical credit score and Smart Move’sResident Score might appear similar. Both may help minimize risks when screening an applicant. Both use the same numeric score: 350-850.
However, with its niche purpose, Resident Score provides an estimate of the risk of evictions or skips than a typical credit score.
With Resident Score, you get a rental score that fits your rental needs. You aren’t stuck basing your decisions on the same algorithms that a bank would use to determine an outcome of a loan. Instead, you’re using a score that specifically estimate the risk of a potential bad rental outcome.
Tradelines (credit account history)
Pro Tip:
If you do use traditional credit scores, it’s helpful to learn what is a bad credit score when it comes to renting.
Tradelines, an industry term to describe consumer accounts, including credit accounts or lines of credit, is information that’s reported to consumer reporting agencies and may appear every time you read a TransUnion credit report.
The tradelines summary provides an overview of various kinds of credit accounts: revolving, mortgage, installment, open and closed. These accounts include auto loans, home loans, credit cards and other kinds of credit lines, in addition to other debt obligations of the consumer. You can see 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 may help you develop an overall picture. You can review whether the applicant carries a high debt load and how leveraged an applicant is.
Tradelines also show current and past payment history, along with whether payments are being made on time. If payments have been received late, it’s described in more detail in buckets of 30, 60, 90, 120, or 180 days.
If a creditor determines they’re unlikely to be paid, other kinds of payment statuses will be noted. Tradelines payment history calls out derogatory accounts, which can be defined as accounts significantly late for payment and the creditor determined that the consumer is in default.
Derogatory accounts may stay on a credit report for seven years or longer from the latest activity date and may include foreclosure, charge-offs, and accounts reported or sent to debt collectors.
Summary of Collections
The summary of collections indicates when an account becomes significantly overdue and is another key aspect when learning how to read a credit report. This section includes accounts a creditor has sold to a professional collection agency.
The collections section reports on unsecured debt, including credit cards and other kinds of personal loans. Collection information may be retained on an applicant’s credit report for seven years from the first delinquency date.
Collection 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
Also included in this section is the original balance of collection and current amount in dollars owed as of the date verified.
Inquiries
The inquiries section displays which companies have requested the consumer’s credit file during the last one to three years, depending on the reason for the inquiry and geographical location of the applicant. It also shows the date when inquiries occurred.
The sample credit report above shows six hard inquiries that occurred over 10–11 months. Consumers who accumulate a large number of inquiries over a short period of time may potentially be getting access to additional lines of credit and possibly overextending their financial limits.
Run Tenant Credit Checks with SmartMove
While battling the threat of late rent, complete nonpayment, and even costly evictions, it can be hard for independent landlords to make strategic choices about their property. Thankfully, SmartMove can help give landlords a bird’s eye view of a tenant’s background to help make more confident leasing decisions.
As a landlord you have to confirm someone can pay the rent on time, in full, and every month. Tenant credit reports help provide a financial snapshot of your tenant, so you can see potential risks that may make them unlikely to pay your rent.
Included in every SmartMove package, Resident Score helps predict eviction 15% better than a traditional credit score alone. Meanwhile, Income Insights help you confirm if your prospective tenant’s reported income matches what they claim on the rental application.
A criminal records search scours hundreds of millions of crime records from state and local agencies for a potential match to your applicant. Add in a previous eviction check to help identify potentially troublesome patterns.
With SmartMove, you get fast, online reports that are backed by TransUnion––a major credit agency with four decades of data expertise. Reports are delivered after your applicant completes ID verification. There are no hidden fees. Simply sign up and start screening immediately.
When it comes to tenant screening, get a fuller picture of your applicant with fast, on-demand tenant screening reports through SmartMove.
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Additional Disclosure:
The information posted to this blog was accurate at the time it was initially published. We do not continue to guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion Rental Screening Services, Inc. blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. For complete details of any product mentioned, visit www.transunion.com. This site is governed by the TransUnion Rental Screening Privacy Policy Privacy Notice located at TransUnion Rental Screening Solutions, Inc. Privacy Notice | TransUnion.
