How do I order a credit report for a tenant?

As a listing agent, your goal is to ensure that prospective tenants are financially reliable and capable of meeting their rental obligations. And one of the most effective ways to do that is by ordering a credit report. A credit report can provide valuable insights such as how likely an applicant is to pay their bills on time, how much debt they have, what their income is, and an overview of their financial health. Armed with this information, you can make sure to pick the best candidates and demonstrate your value to landlords. Here’s everything there is to know about how to run a credit check on a tenant including how to comply with legal and ethical standards so you can make the right choice.

What are credit reports and why are they important

Late rent payments can become a major problem for landlords and property owners. Besides hurting their bottom line, it can cost them thousands of dollars if they end up having to proceed with an eviction. However, running a credit report can help you pick high-quality tenants who can afford rent so that doesn’t become a problem. And it’s because credit reports provide a goldmine of information about them.

What information is included in a complete credit history report?

The key components typically found in a complete credit history report include:

Personal information: This section includes identifying details such as name, Social Security number, date of birth, current and previous addresses, phone numbers, and employment history.

Credit accounts: A tenant credit report lists all current and past credit accounts, including credit cards, mortgages, auto loans, student loans, and other types of credit. For each account, it includes:

• Account type (e.g., credit card, mortgage)
• Date the account was opened
• Credit limit or loan amount
• Account balance
• Payment history (on-time payments, late payments, defaults)

Credit inquiries: This section shows inquiries made into the individual’s credit report. There are two types of inquiries. Hard inquiries occur when a lender or creditor checks the credit report for lending decisions and can impact the credit score. In contrast, soft inquiries occur when an individual checks their own credit report or when a lender checks the report for pre-approval offers, and they do not affect the credit score.

Public record filings: This section includes publicly available information that might impact creditworthiness, such as:

• Bankruptcies
• Foreclosures
• Tax liens
• Civil judgments
• Current and previous employers

Collections: This part lists any accounts that have been turned over to a collection agency due to non-payment. It includes the original creditor, the collection agency, and the amount owed.

Credit score: Depending on which tenant screening service you use, some credit reports will include the applicant’s credit score, which is a numerical representation of the individual’s creditworthiness.

A step-by-step process of how to run a credit report

Follow these steps to learn how to run a credit report.

1. Gather required information and consent

Before ordering a credit report, you must have the applicant’s permission. When you have a prospective tenant fill out the application, don't forget to have a section that authorizes you to complete background and credit checks and provide details of any credit fees you plan to charge. 

2. Select a credit report provider

Next, determine which of the three nationwide consumer reporting agencies (Experian, Equifax, or TransUnion) and tenant screening services best fits your needs. RentSpree tenant screening, for example, is free for agent's to use and comes with a completed rental application, credit report, background check, and rental history report. Consider factors like cost, ease of use, and the comprehensiveness of the reports. Property management companies can also handle tenant screening and run a credit check on tenants to give you a full credit history. 

3. Register with the service

Whether you decide to use a credit bureau or a tenant screening service like RentSpree, you will need to create an account which usually involves providing your business details and verifying your identity as a real estate agent, landlord. Most companies will require you to submit proof of residence, proof of identification, and proof of employment.

4. Submit applicant’s information

Once you’ve logged into your account, you will need to input the applicant’s personal information which typically consists of their full name, Social Security number or Individual Taxpayer Identification Number (ITIN), and address history. Keep in mind, some services offer instant reports, while others may take a few hours.

5. Review the credit report

After you obtain the report, it’s critical to review it for key indicators. Focus on critical aspects such as:

• Credit score: A numerical representation of an applicant's creditworthiness
• Payment history: Any late payments, defaults, or collections
• Public records: Bankruptcies, liens, judgments, or evictions
• Credit inquiries: A history of credit checks, which can indicate financial behavior

6. Make a decision

To make a well-rounded decision, evaluate the information from the credit report in conjunction with other factors like rental history, employment verification, and personal references. Oftentimes, a personal reference can provide valuable insights into an applicant's character and dependability that may not be obvious from a report. 

Legal considerations about ordering credit reports

While ordering a credit report can help make it easier to decide whether or not you should accept or reject a tenant, it’s wise to become familiar with the legal implications involved with it. Failure to comply with regulations can result in legal consequences and damage your reputation.

Fair Credit Reporting Act (FCRA) 

The Fair Credit Reporting Act (FCRA) is a federal law that controls how consumer credit information is collected, shared, and used, making sure it is accurate, fair, and private. It ensures that you have a valid reason or “permissible purpose” to access a tenant's protected data. 

The FCRA also requires you to follow specific guidelines if something unexpected comes up on the report that influences your final decision. For example, you must notify the applicant, provide a copy of the report, and send them the FCRA Summary of Rights statement. 

Additionally, if an applicant suspects any inaccuracies or errors on their report, you must allow them time to correct it. If you ultimately decide to reject an applicant, you must let the tenant know that you’ve decided to take “adverse action” by providing a letter that states your reasons and the name and address of the credit reporting agency you used. 

State laws

In most states, it's legal to charge applicants a fee to cover the cost of the credit report and your time, with fees ranging from $30 to $50. For example, California has a maximum charge and insists that the landlord provide an itemized receipt of any screening fees. 

Before you collect the fee from an applicant, make sure to inform them that’s not a guarantee that they’ll get the apartment. If you have a large number of applicants, aim to review all the applications first so you only end up charging qualified applicants a fee instead of everyone. It is also illegal to charge a credit report fee for-profit or for any other reason other than running the report itself. In fact, doing so is considered fraud. Remember, the credit check fee should reflect the actual cost of the check and should not be artificially inflated.

Data protection

When you screen potential applicants, you gain access to a lot of their personally identifiable information—and it’s your responsibility to protect it. If an applicant’s sensitive information falls into the wrong hands, not only can it result in fraud, it can lead to identity theft and phishing scams. To safeguard applicants’ information, make sure data is stored securely and only accessible to authorized individuals. Consider choosing tools with data security in mind and implementing multi-factor authentication (MFA) for your accounts. As a landlord or property manager you’re also required to comply with the "disposal rule" which states that you must only keep information that’s absolutely necessary from an applicant's credit report and discard the rest.

Work with RentSpree to get the full picture

While running a credit check on a tenant can be a bit tedious, the potential consequences of not doing it could be much worse. At the end of the day, a credit check can help you make the right decision about which applicants to choose and which to turn away. 

With RentSpree’s tenant screening, you can weed out risky applicants and secure the ones who will be most likely to pay rent on time every month. That way you can protect the property owner’s investment and ensure a smooth rental experience. 

RentSpree includes an applicant’s completed rental application, a credit report from TransUnion SmartMove, and much more to make the entire application process a breeze. Plus, the tenant pays the credit reports fees so you don’t have to. Curious to learn more? Reach out to our team to schedule an upcoming demo where we'll walk you through our entire suite of tools.

FAQ’s

Can tenants submit their own credit reports?

Tenants applying for multiple rentals often find it frustrating to pay each landlord for the same credit report. To save money, they might get a copy of their credit report, make duplicates, and ask landlords to accept these copies. While federal law does not require landlords to accept a tenant-provided report, allowing you to charge a fee for a new credit check, state laws may have different requirements. In most states, it is up to your discretion whether your client accepts the applicant's copy of their credit report, but a reliable online tenant screening company can give you precise and up to date details. It is undoubtedly safer to run a new report for each applicant so that you can ensure you have up to date information.

How much does a credit check cost in my state?

Credit checks can cost anywhere from $30-$50. For a complete list of how much they cost in each state, see here. 

What if I have a lot of tenant credit reports I need to run?

You may want to consider using a tenant screening service or subscribing to a credit check service, since it may be more cost-effective and reduce the time it takes to run multiple reports. 

How long will running a credit report take?

Pulling a report can take anywhere between two and ten days. 

What if a tenant doesn’t have any credit?

An applicant with no credit history shouldn't automatically be dismissed from consideration, as they may still be a suitable candidate. In the absence of credit history, you'll need to delve deeper into the applicant's financial background to confirm their identity, income, employment, and rental history. For instance, verifying an applicant's ability to afford rent can involve requesting recent pay stubs, W2s, and a letter from their employer. Additionally, contacting previous landlords and employers directly can ensure the applicant has a track record of timely rent payments. 

Regarding applicants with no credit history, you might consider requesting a larger security deposit, advance rent payment, or a co-signer. However, it's crucial to establish these requirements upfront in your screening criteria and specify them in the rental agreement terms.