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How to Evaluate a Tenant Credit Report


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The tenant credit report is a necessary screening tool

 

As any landlord knows, part of your responsibility when it comes to trying to rent a property is to manage tenant screening activities such as the tenant credit report analysis.  Yes it seems obvious, as no landlord wants deadbeats or criminals living in their rental property.  But unfortunately many landlords do not know what to look for or how to properly screen prospective tenants.


Your screening should involve a tenant credit check, criminal background check, employment verification, and reference checks (especially previous landlords).  While most of these steps are self-explanatory, many landlords get hung up on the credit report – specifically, they do not know how to analyze these reports to evaluate the credit-worthiness of an individual.  Thus, the purpose of this post is to drill down on the tenant credit report specifically.

FIRST STEP: THE RENTAL APPLICATION


Of course, the first step in the screening process is to have the potential tenant complete a rental application.  This will provide all the information you need to properly screen the tenant, including his or her social security number.  There are basically 3 ways that a credit report can shed light on potential tenants.

CHECK #1: IDENTITY VERIFICATION


The first benefit of running a tenant credit check is identity verification.  You can use the credit report to validate the applicant’s name, social security number and date of birth.  If the information on the rental application and the person’s credit report do not match up, there is a strong possibility that the prospective tenant is misrepresenting his or her identity.  In the vast majority of cases, an applicant that uses someone else’s identity is trying to cover up a criminal record.

CHECK #2: EVALUATION OF CREDIT WORTHINESS



The second benefit is to evaluate credit-worthiness, which is a strong indicator of the applicant’s willingness and propensity to meet his or her financial obligations regarding the tenancy agreement.  The credit report will also shed light on the applicant’s employment history, which is obviously crucial in determining whether or not he or she makes enough income to meet the financial obligations of the tenancy.  If the potential tenant’s credit history is poor or non-existent, walk away.

CHECK #3: VALIDATE PRIOR TENANCIES


Third, the credit report can shed light on the applicant’s prior rental history.  The report will usually contain information on the applicant’s previous addresses.  If these addresses do not match up with those provided on the rental application, it’s usually a sign that the applicant is trying to hide his or her prior tenancies – not good!

SUMMARY


To sum it up, as a landlord you must employ good tenant screening tactics, and as such you must be able to analyze a tenant credit report. This is a critical aspect of the overall tenant screening process, and should not be taken lightly. By validating the applicant’s credit-worthiness, identity, and prior residences, you can get a complete picture of the overall quality and desirability of the applicant and hence make better rental decisions.  Just a little extra effort now, and you’ll be better off in the long run. Good luck!



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