What Is a Rental Background Check?

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You’ve successfully marketed your property and shown it to a host of interested candidates. After the showing, it’s time to begin the process of gathering their information in order to evaluate their financial, rental, and criminal background information. This is the rental background check, and it is an important part of the process in how to find good tenants for your property.

Beyond protecting you and the property owner, a rental background check protects the value of the property, other tenants, and neighbors. On top of that, a thorough tenant screening provides liability protection based on the actions of the new tenant.

Often, however, people are reluctant to conduct the kind of background screening they need. The time, expense, and paperwork required, as well as the follow-up required, can be intimidating for many rental agents and property managers. However, with a streamlined, digital process -- like the one provided by RentSpree -- you’ll be able to conduct a tenant evaluation more quickly and easily than ever.

What does a background check show?

What we think of as a rental background check includes multiple steps designed to give you comprehensive, big-picture insight into the applicant’s financial life, past criminal behavior, and rental history.

It is important to remember that the rental background check must be conducted the same way for all applicants in order to ensure that you are on the right side of federal, state, and local fair housing regulations. You cannot differentiate whether or not to run a check or the various required elements based on race, nationality, gender, or other factors as defined by the laws in your market.

In addition, it is important that you maintain records regarding the documents you gather, the reports you run, and the decision-making process that you use to evaluate potential tenants. Should someone accuse you of discriminatory practices, whether accidental or intentional, you will need to prove that your process was scrupulously fair and that you treated all applicants equally.

When you are making decisions based on the reporting you gather, remember that you will want to differentiate between recent red flags and problems in the more distant past. While an erratic financial or employment history is certainly something to be concerned about, there is a difference between a problem 20 years ago and one during the past 24 months.

Online rental application with document gathering

The first step in running a background check is gathering the personal information and documentation you need in order to conduct the evaluation. In this regard, an online rental application has a number of benefits over a paper application process.

These include the following:

• An online application allows you to require all necessary information before submission, so applicants can’t submit an incomplete profile.
• Forget trying to decipher bad handwriting, abbreviations, and incomplete written applications. An online document will ensure that all of the information is easy to read.
• An online rental application can be filled out from anywhere on any device, meaning applicants don’t end up putting it off because they don’t have access to a printer, scanner, fax machine, or have time to drive a paper application over to your office.
• You’ll start getting information back from your online rental application almost immediately, with reports coming in upon submission of the application.
• Tenant screening involves a great deal of personal information, including criminal and financial history, social security numbers, and more. A comprehensive online process keeps this sensitive information more secure.

Aside from the application information, you will require supporting documents like a driver’s license or state-issued identification card, paystubs, or a letter from the applicant’s employer. With convenient upload, an online application can offer an easy way to submit these necessary materials.

A secure, online portal offers the added advantage of additional protection for these documents. This is especially important in a world of security breaches and data hacks where you are responsible for the security and disposal of documents submitted to you, both during the screening process and afterwards.

Full credit report

A credit report will give you an overview of the applicant’s financial history beyond his or her payment or non-payment of rent. Bankruptcies, liens, foreclosures, and other negative indicators can give you an idea of the potential tenant’s attitude toward their financial obligations.

In addition, you will be able to see if the prospective renter has financial obligations that might interfere with the ability to pay the rent you are charging. For example, credit accounts that are in collection status or a car that has been repossessed may result in wage garnishment, meaning that the applicant may have limited resources to control the way their salary is distributed.

In some cases, the problem won’t be a negative credit report, it will be a lack of information on the credit report. Some young renters may not have had a chance to build much of a credit history, especially right out of college or when they first enter the workforce. In this case, you may need to require a co-signer in order to provide additional financial information and reassurance.

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Credit score

You are probably familiar with credit scores and the way that they help you approximate the credit-worthiness of an applicant. However, all credit scores are not created equal. Rental applications processed through RentSpree offer the advantage of the TransUnion SmartMove Resident Score.

Unlike a traditional credit score that only looks at a limited number of factors represented in a financial history, TransUnion’s Resident Score looks at a wider variety of factors to determine how likely a potential tenant is to require eviction, pay rent late multiple times, or have insufficient funds. Because the SmartMove matrix is specific to the rental industry, you’ll find more reliable results and predictions, which is another key component on how to find good tenants for your property.

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Criminal background check

While you may be focused on on-time rent payments and financial matters, one of the most important aspects of the rental background assessment is the criminal background check. A meaningful criminal screening should cover a variety of law enforcement agencies in order to ensure that you fully understand your applicant’s background. These may include, but are not limited to, state and national records along with databases like most wanted lists and sex offender registries.

It is important to screen for more than violent offenses. Drug offenses could indicate the potential for drug dealing and use on the property you represent. This opens up the owner to additional civil liability and criminal penalties, especially if it is found that you or the owner suspected that this activity was taking place on the rental property.

Remember, according to fair housing laws, you cannot refuse to rent to someone based on an arrest record. You must base your decision on other factors or on an actual conviction. The law requires the property owner to prove that their screening policy serves a “substantial, legitimate, nondiscriminatory interest.”

Some drug offenses must be overlooked if there was subsequent (and, in some cases, ongoing) drug treatment. This is because an addiction to drugs or alcohol is classified as a disability for fair housing purposes. It is important to consult with your attorney in order to ensure compliance with the pertinent fair housing requirements.

In addition, you must run the same reports for all potential tenants and base your decision on the same tenant screening criteria. Therefore, don’t overlook a prior conviction for one renter and not for another, especially if they are of a different race, color, or national origin. This could be construed as intentional discrimination, and a violation of fair housing laws.

50-State Eviction Report

Different states and municipalities have different laws covering the process and procedure for evicting a renter, either for non-payment of rent or for problematic (or illegal) behavior. A 50-state eviction report plus records from Washington DC and US territories including Guam, Puerto Rico, and the US Virgin Islands can help you find out if your potential renter has a problematic rental history.

Records included in the eviction report include:

• Tenant judgments for possession and money
• Unlawful detainers
• Tenant judgments for rent
• Failure to pay rent
• Writs and warrants of eviction

Along with an eviction report, you will want to check references from former landlords. Here you’ll find information about the tenant’s attitude toward on-time payment of rent. You will also gain insight into how they took care of the property and fulfilled their obligations under the lease.

It is important to follow up on references that are provided. Too often, rental agents believe that an applicant “wouldn’t have submitted the reference if they weren’t good.” However, you will find that you can gain valuable insights from a previous landlord, so it is always worth making the call.

Notification of adverse action

Should you decide not to rent to an applicant based on something in their background check, or if you choose to change the required deposit or rental amount, you must comply with regulations covering the process for notification.

This notification is called an Adverse Action notice, and the following are required:

• The applicant must be given notice of the action taken, whether it is an outright refusal, requiring a co-signer, or a change to the amount of the deposit or rent.
• You must supply the applicant with contact information for the company that supplied the report so that they can verify the information for themselves.
• The notice must describe the applicant’s rights to correct inaccurate information and offer them a free copy of the report if requested within 60 days of your decision.

Once the applicant has received their credit report, they have the opportunity to fix any errors and have the company submit a corrected report to you. In addition, they may reach out on their own to tell you if there has been a mistake.

Note that you are allowed to provide an adverse action notice verbally, however it is always a good idea to follow up with a written notification in order to prove that you have complied with the required process.

A simpler, better process with RentSpree

There are a variety of moving parts to the rental background check. That’s why it makes sense to work with a platform like RentSpree in order to streamline and simplify the process. A better process leads to faster and more confident decision-making.

Each convenient screening package includes a full online rental application, a TransUnion SmartMove report, a criminal background check, and a nationwide eviction report. With these tools, you’ll reduce your liability and that of the property owner by creating a clear and easy-to-review process.

Now that you know how to effectively conduct a rental background check, it’s time to look at how some tenant screening services drop the ball when it comes to conducting a thorough review of your potential renter.