Summary:
It's essential for independent landlords to vet any potential tenant. Otherwise, you may not get paid. Tenant screening should include a dive into your potential renter’s financial situation.
A credit report with ResidentScore® can help you learn about an applicant’s financial situation, history, and debts. Meanwhile, a credit check and income verification is helpful to learn the truth about someone’s current circumstances. Both are essential when reviewing any rental applicant.
Disclosure: This content, except as otherwise indicated or stated on this site, is the property of TransUnion Rental Screening Solutions, Inc. This content is for educational purposes and for convenience only. Trademarks used are the property of their respective owners, and no endorsement or affiliation is implied. The information presented in this content is “as is” without warranties of any kind, and specifically is not represented to be complete and does not constitute legal advice, and is subject to change without notice. You are encouraged to check these terms from time to time for changes, and by accessing this site you agree to these terms and all terms listed. Laws and regulations may vary by state and locality. Consult your own counsel if you have legal questions related to your rental property practices and processes.
Disclaimer: Remember that this material is intended to provide you with helpful information and is not to be relied upon to make decisions, nor is this material intended to be or construed as legal advice. You are encouraged to consult your legal counsel for advice on your specific business operations and responsibilities under applicable law. Trademarks used in this material are the property of their respective owners and no affiliation or endorsement is implied.
While not often wearing bright masks and tight spandex, independent landlords constantly find themselves in the ring, wrestling with decisions. Should you reinvest rental earnings in desirable renter amenities this year or next year? Should you refinance your mortgage, or even buy an additional rental property?
Among all the opposing worries, one major decision to tackle is who you’ll let into your property. The right decision means you get to keep your income. Choose the wrong tenants and may risk getting your rental business KO’d from possible property damage and potential eviction lawsuits. This is why millions of landlords conduct fast, affordable tenant screening through services like SmartMove®.
However, even with background reports, landlords have to consider many data points when making a decision. Sometimes, it’s hard to tell what information on a rental application is the most helpful. This article compares two useful heavyweights in the tenant review game––credit reports and income verification––to determine which one is more helpful.
In the showdown of Credit History vs. Income Verification, here’s what to expect:
What a Renter Credit Report Helps Reveal to Landlords
Does your renter have a healthy history with money and pay their debts on time, or are they totally underwater? The answer could mean the success or failure of your rental business.
A credit report helps you get a general sense of someone’s creditworthiness, their ability to meet their financial obligations, and their general track record with money.
Knowing your potential tenant’s financial patterns and habits can be extremely useful information when making your leasing decision.
But, what should you look for when reviewing financial info? There may be many red flags on renter credit reports, like:
- Gaps in payments
- Frequent late payments
- Delinquent accounts, especially in rental history
- Low credit score for renting
- Significant debt load, especially when compared to income
- Other derogatory marks
Not every negative item on a credit report means you should automatically disqualify someone as a renter. Circumstances and people change over time. However, no matter the situation, it’s still crucial that you’re aware of all of the information before making your choice.
Pro Tip:
Though important, credit reports can be sometimes difficult to read for people who don’t look at them frequently. Check out the full article for how to read a tenant credit report for some pointers.
How to Get Renter Credit Reports
Credit reports are crucial for landlords to review. They are especially important for independent landlords who can’t necessarily afford the cost of eviction, or turnovers due to vacancy in the same way large management companies can. However, be warned: not all credit reports are created equally.
According to the Federal Trade Commission, data contained on tenant credit checks is considered “consumer data” and therefore protected under federal law.
According to law firm Arent, Fox, & Schiff, FCRA-related lawsuits have increased 100% in the last ten years. If you’re not careful, you could be the next defendant. To protect yourself and your property business, get tenant credit reports from a reputable, authorized service like SmartMove.
Here’s what you get with SmartMove:
- Full Credit Report. Reveals your rental applicant’s financial history, debt, open credit lines, repayment habits, and more. Knowing how your renter acts when they owe people money may help you make better decisions.
- ResidentScore. Traditional credit scores are used for lending and borrowing arrangements and aren’t necessarily the best predictors of someone’s ability to pay rent. Exclusive to SmartMove and included with every screening package, ResidentScore is better at helping predict eviction risk better than traditional scores.
- Complete online convenience. With no paperwork, or physical offices with limited hours, SmartMove’s wholly online process means you can request and read reports whenever and wherever you want.
- Fast Screening. Our patented consumer push approach means you get fast results, after your potential tenant enters their information.
The Takeaway: Getting credit information ahead of time may help you understand someone’s credit habits. On the other hand, financial verification usually just provides a snapshot of someone’s current situation. But, which is ultimately better? Read on to find out.
How Income Verification Helps Landlords
According to Investopedia, half of tenants in the United States spend more than 30% of their income on housing. It can be helpful to understand your own prospective tenant's rent-to-income ratio.
In years past, independent landlords may have been inclined to look for at least a 3:1 rent-to-income ratio when evaluating tenants. This meant a prospective tenant’s monthly income would be at least three times that of the rent rate.
- 3:1 Rent Ration Example: If you charge $1,000/month for rent, you’d like your perspective tenant to make at least $3,000/month
The 3:1 ratio may be seen as a quick rule of thumb, but it's no rule, as many other factors come into play when screening prospective tenants.
If you don’t take the time to verify a rental applicant’s actual income, you’ll never really know if they can pay the rent. If they don’t, prepare for the giant headache of rent non-payment and the stressful expenses that go along with it.
Checking how much tenants make is as helpful as checking the applicant’s eviction history. Like with the credit report, previous evictions or low monthly wages aren’t necessarily a deal breaker in all situations. However, it’s better to know what the potential risks are ahead of time, so that you can make more informed decisions and help mitigate potential issues.
Pro Tip:
Financial verification is helpful, but not the only criteria to consider. Use a criminal background check to help discover if your rental applicant has any relevant crimes that could put your property at risk.
How To Conduct Income Checks For Rental Applicants
There are many things you can do to verify a prospective tenant’s income, including:
- Ask the right questions on your rental application. Ask for employment and salary information. Make it clear you will be verifying the data right from the start.
- Contact their employer to verify they are employed. Check if the work conditions (e.g. full time, part time), length of contract, and the salary information matches what the tenant claimed.
- Get documentation, such as tax returns from previous years, recent pay stubs, or other documents. But, be careful: fake financial documentation is a common type of rental scams.
- Or, skip the hassle and use Income Insights to help identify the self-reported info on the rental application is correct. Only at SmartMove, Income Insights checks your rental applicant’s self-supplied data against their real-world financial behavior.
The Takeaway: Financial verification shows a great snapshot of someone’s current financial status. However, it doesn’t reveal much about their past credit history. For example, what if they lose their new job and fall back on historical credit habits? Can financial verification tell you everything you need to know? See below to find out.
Renter Credit Reports vs. Income Verification
When it comes to placing tenants in your unit, the brawl between credit reports and income verification ends in a draw. In the end, they are not competitors, but rather teammates. Your teammates.
Both credit reports and income verification are critical when assessing a rental applicant’s match to your property. Information from both provides a fuller picture of the financial situation of your renter and can help you make more confident leasing decisions.
Help Uncover Your Renter’s Financial Situation with Tenant Screening through SmartMove
Sumo wrestling might be all about trusting your gut, but making confident leasing decisions shouldn’t be. Help make sure you’re getting reliable renters who have the financial resources and history of paying debts on time with fast tenant screening through SmartMove.
Get the skinny on your rental applicant’s financial habits with a full credit report. Included in every screening package, a ResidentScore even helps predict eviction risk 15% better than a traditional credit score alone. Add in Income Insights for some extra reassurance that your applicant is being honest about their salary on the rental application.
When gauging potential tenants, there’s so much more than just financial history to consider. The Identity Check Report allows you to have confidence that your tenant is who they say they are. An eviction check helps you to discover your potential tenants rental history. Meanwhile, a criminal record report checks your rental applicant’s information against millions of criminal records looking for a potential match to your applicant.
With data backed by TransUnion, a major credit agency, you can feel more confident about your leasing decision. Affordable, online screening packages mean you don’t have to waste any time leasing to great tenants.
Don’t let your independent property business wither on the ropes. Conquer the property game and the help get data you to help, with tenant screening through SmartMove.
SmartMove,
Great Reports. Great Convenience. Great Tenants.
Know your applicant.
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.
