When Is It Legal for Agents to Access a Credit Report?

Disclaimer: This article is not legal advice. Any legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.

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How do REALTORs® check your credit score, and when is it legal?

As a potential tenant or buyer of real estate, credit reports are often necessary. Part of the credit report is the credit score, which assigns a number to your creditworthiness. Obtaining this information requires your consent, and additional rules and compliance requirements apply. If you’re wondering how REALTORs® check your credit score, you’ll appreciate this guide.

Disclaimer: This article is not legal advice. Any legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances. You should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice or an endorsement of any particular legal understanding.

What is a credit report and credit score?

A credit report is a detailed record of someone’s financial history. Consumers must submit to them for various reasons when they want to make a purchase, apply for a line of credit, or get approval for a rental property.

What does a credit report include?

• Borrowing
• Outstanding debts
• Payment history
• Account information
• Credit inquiries
• Public records of bankruptcies, tax liens, foreclosures, civil suits, and judgments

The purpose of a credit report is for lenders, property owners, or rental agents to view a snapshot of your financial behavior to determine your level of credit risk and the likelihood of your ability to pay bills on time.

A credit score is part of the credit report. It’s a numerical representation of your creditworthiness. It’s a three-digit number that often is the primary consideration for approval of the loan or rental application.

Credit report vs. credit score

Credit reports are statements with all your activities, debts, and available credit. The credit score is a calculation of all these inputs.

While you may be aware of credit reports and scores as a necessity in real estate transactions, you may not know who can view them and how they can use the information.

Keep reading to learn how agents check your credit score and report.

Leasing agent vs buying agent vs. selling agent

Why do agents check your credit report? It depends on the role they play. An agent may be working on behalf of a property owner or seller, or as the agent of a landlord. Let’s look at the differences.

‍Buying agent and credit report uses

‍In general, a buyer’s agent won’t need a copy of a credit report. Buyers generally direct their clients to a licensed and experienced mortgage broker. They will perform a credit check securely and compliantly. Agents may then receive a pre-approval letter to share with the buyer’s agent when making an offer.

‍If a buyer is having trouble obtaining a lending pre-approval, an agent may make some friendly inquiries. Collecting this information helps them gauge the situation and refer you to experts who can assist. Any information provided in this circumstance is entirely voluntary.

‍Selling agent and credit report uses

‍Selling agents don’t need credit reports from listing parties. Like buying agents, selling agents also need information from a lender. Some buyers may start with a prequalification, which estimates buying power. It may not require the purchaser to perform a hard credit inquiry.

‍ A selling agent must know the difference betweena prequalification and a full mortgage pre-approval. The latter includes the purchaser’s credit report and the vetting of assets by a lender.

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Leasing agent and credit report uses

Why do leasing agents need to check your credit score? You’re not making a purchase or borrowing from a lender.

However, this is a unique circumstance. Checking credit is now standard in rental applications and tenant screening. Landlords can set the criteria they choose to accept or require a higher rent or deposit. Landlords may adjust rental conditions based on credit, but all applicants must go through the same credit screening criteria.

So, how do REALTORs® check your credit score and report? They must follow specific laws:

• They must receive permission from the potential tenant, typically in writing.
• The disclosure must also state any fees associated with the credit check in accordance with state law (usually $30 to $50), as well as the reason for the costs.
• The next step is to obtain personal identification information from the individual.
• After performing the check, rental agents must only use the report as dictated bythe Fair Credit Reporting Act. Because of this, it’s essential for both tenants and agents to review the fine print before entering into a leasing agreement.

There may be cases where a renter can provide their own credit report to avoid fees and hard inquiries to credit bureaus. This is less common than the above process.

What happens if the credit report doesn’t meet the landlord’s criteria?

In this scenario, anadverse action can occur, which could include setting a higher rate or a denial. This requires informing the applicant of such and which agency (Experian, Equifax, or TransUnion) generated the report and score. It must contain the bureau’s contact information.

‍Tenants have the right to request review and correction of any facts that may be in error. They can also obtain a free copy of the credit report directly from that agency within 60 days. If the report was in error, a landlord may and should reconsider the corrected application. It’s only relevant if there is still an open unit at the time of this correction.

‍Once there’s a determination of creditworthiness, landlords cannot keep an applicant’s data beyond what’s needed to track an application. Called the “Disposal Law,” a leasing agent must get rid of your personal, consumer-reported data after the review period. They cannot sell or show the data to any party not affiliated with the original contract.

So, when can a REALTOR® legally check your credit score? When they are acting in a leasing capacity and with an applicant’s explicit permission.

How agents use credit reports for tenant screening

Credit reports are part of tenant screening best practices. An agent may only use this information to determine risk and ability to pay the monthly rent. They are using your financial history to assess your stability. From this information and the credit score, they can make an educated assumption of whether you can pay rent on time and in full.

How credit reports impact loan and rent approval

Your credit report affects whether you gain approval for a loan or rental property. Your financial picture is a key evaluation tool for making decisions. Components of the credit check that impact approvals include:

• Credit score: It’s a leading factor in approval decisions. Landlord criteria may set a specific lowest possible score. The higher your credit score, the less risk you pose. Improving your odds of approval.
• Payment history: If you’ve consistently met your debt obligations, it reveals your pattern of being fiscally responsible. Late payments may be a red flag.
• Debt-to-income ratio: This ratio compares your debt payments to gross income. Both lenders and rental agents review this to ensure you’ll have enough money to pay a mortgage or rent.
• Negative records: A credit report will disclose past bankruptcies, foreclosures, collections, or charge-offs. They don’t automatically disqualify you but are weighted. The more recent they occurred, the more likely an adverse action.

How credit reports influence the components of the loan:

• Loan amount: Higher credit scores increase the amount you qualify for while lower ones restrict it.
• Interest rates: Those with excellent scores and a clean history will benefit from lower interest rates. Those who don’t may have to pay higher ones to borrow money.

How credit reports affect rent approvals:

• Security deposits: If your credit score is low, the landlord may require a higher security deposit.
• Options for renting: Those with high scores may have access to more properties.

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‍Avoiding discrimination in real estate credit reports

‍In reviewing how agents check your credit score and report, you should also know about laws around discrimination.

No one can use the credit check to set standards based on race, gender, ability, or any other factor that unfairly discriminates against a specific group of people. They must treat all applicants equally throughout the application process.Rental agents may not create uneven standards of rental rates, pet policies, vacancies, or credit scores.

Resources for renters on credit scores and reports

Now that you know why and how agents check your credit score and report, explore these resources:

How to build your credit reporting rent payments

Renter's tenant screening guide

What to know about a soft credit checkWhat’s the average credit score you need to rent an apartment?‍