As a landlord, you can protect yourself against troublesome tenants by running credit checks as part of the rental application process. The type of credit check needed depends on how much information you want about a prospective tenant before making a decision to offer them a lease or rental agreement. Regardless of the type of credit check you choose, federal law requires you to notify a potential tenant of your plans to perform a credit check, as well as whether a bad credit report contributed to your decision to decline his application.
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How to Use a Credit Check
Many landlords choose to perform credit checks on tenants to determine a tenant's financial situation as well as to verify information on a tenant's application. A credit check can let a landlord know if a tenant has difficulty paying her bills as well as whether the tenant has been the target of lawsuits by other landlords. Because a credit check often lists an individual's previous addresses and employers, it can help a landlord verify a tenant's story about her employment and previous experiences as a renter.
Basic Credit Checks
Many companies sell basic credit reports to landlords. These reports usually include information about a prospective tenant's previous addresses and employers, along with a list of the prospective tenant's payment histories on his debts and credit accounts. Information about lawsuit judgments and bankruptcies also appears on these reports. Contrary to what many people believe, simple eviction cases, in which the judge did not award money to a landlord, usually don't appear on tenant credit reports. Similarly, a history of late rent payments may not appear on the credit report unless the tenant's previous landlord or property manager regularly made such reports to credit bureaus.
Federal law limits the amount of time negative information appears on credit reports: The information you see on a credit report may not include judgments or late payments that took place more than seven years ago.
Tenant Screening Reports
Some companies offer landlords and property management companies more comprehensive tenant screening reports. These reports include valuable information that may not appear on standard credit reports, such as a tenant's criminal history or information about eviction cases filed against a tenant that didn't result in a money judgment. Tenant screening companies may also provide an analysis service that offers a recommendation, based on her credit report, as to whether you should accept her application.
The federal Fair Credit Reporting Act (FCRA) requires you, as a landlord, to get an applicant's permission prior to requesting his credit or tenant screening report. The FCRA also requires to you to let the applicant know if the report negatively influences your decisions about application approval or lease terms. For example, if the tenant's bad credit causes you to reject the application or require a co-signer on the lease, you must explain this to the tenant. You must also provide the tenant with a printed "adverse action notice" that includes the name and address of the company that provided the credit or tenant screening report. The notice must also let the applicant known that he is entitled to a free copy of his credit or tenant screening report from this agency.
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- Federal Trade Commission; Using Consumer Reports: What Landlords Need to Know; December 2001
- California Tenant Law; Eviction on Your Credit Report; Ken Carlson
- Experian; Broken Apartment Lease Contract can Affect Your Credit Report; Maxine Sweet; April 18, 2007
- Experian; Late Rental Payments are not Typically Reported by Landlords; January 20, 2010
- Experian Screening Services
- Nolo; How to Screen and Select Tenants FAQ