How to Do a Credit Check on a Tenant

When you are going to rent a residential property to a tenant, you need to screen prospective tenants as thoroughly as possible. There is no guaranteed way to tell who will be a responsible tenant, but there are certain indicators. One of these is a good credit history. If a person pays his bills on time, he's likely to do the same with his rent. By doing credit checks on prospective tenants, you can select someone who has demonstrated financial responsibility.

Instructions

1. Indicate that you will require a credit check for all prospective tenants when you advertise your rental property. If potential tenants know up front that you will be reviewing their credit reports, you might discourage people with a bad credit history. This will prevent you from wasting your time and money doing a credit check on them.

2. Have prospective tenants fill out a rental application that asks for their permission for you to do a credit check. You should also ask for information such as their name, address, current employer, current income, driver's license number, Social Security number and credit history. Ask specifically about any previous evictions, bankruptcies or judgments. You should also ask for personal references.

3. Use the prospective tenant's Social Security number and other information to order a credit report. You can do this through a credit reporting agency, which will pull and consolidate the information from the three major credit bureaus (Experian, Equifax and Transunion). Prices vary, so compare the charges of several credit reporting agencies before deciding which one to use.

4. Review the credit report very carefully, looking for any signs that a tenant might not be reliable. The credit reporting agency will provide a key that allows you to easily interpret the information. Look for things like chronic late payments on credit accounts, court judgments and bankruptcies. Even if the prospective tenant has a good payment record, notice how much debt they are carrying and how much of their income is currently required to pay it. They will need enough left over to pay the rent.

5. If you decide against allowing a tenant to rent your property based on your review of their credit report, mail her an "adverse action" letter containing details of your reasons. You must include the exact reasons you rejected her as a tenant and the name and address of the credit reporting agency you used to obtain the information. You must also let her know that she has the right to request a copy of her report from that agency within the next 60 days.

Tips & Warnings

• When you are screening prospective tenants, keep credit reports, letters and any other documentation that you used in your research. According to the NOLO legal site, this will help you protect yourself in case a rejected tenant tries to sue you for discrimination. You can use the negative credit reports and copies of the "adverse action" letters to prove that you made your choice on a legal and objective basis.

References

• Information from NOLO legal site