6 Things Every Landlord Must Review On A Credit Report

Online rental applications are a great way to fill vacant rental units. Once you receive an application, run credit and background checks. Credit checks provide critical details about the applicant’s debt management history. You will see credit cards, loans, or bank accounts in their name. In addition, the report provides their name, address, employment history, or social security number. With this information, you can make an educated decision about the ideal tenant. Here are some things to consider about an applicant’s credit history.

Investigate Income Sources

Not every applicant works a traditional full-time job. Almost 50% of Americans have a side hustle that provides additional income. Unfortunately, results from these gigs may not show up on a credit report. The applicant may give you an Uber employment verification report. These reports consolidate income statements from the applicant’s freelance gigs and their traditional employment history.

Look For Gaps

Credit reports show up to 10 years of credit history. Review the applicant’s timeline for making payments on their financial obligations. Failing to pay their debts every month consistently can be a red flag as to the applicant’s motivation to make timely rent payments.

Evaluate Debt

Take a look at the type of debt the applicant owes. Student loan debt is more acceptable than an equal balance on a department store credit card. Pull out your calculator and add the total monthly payments, including rent and subtract that from their income. Ask yourself if the applicant can realistically pay existing debts based on their income. Remember, the credit report will not detail food costs or entertainment expenses.

Analyze Financial Responsibility

Scrutinize the report for warning signs that indicate that the applicant may not be the most reliable money manager. Look for recent changes in their credit applications and payment trends. As a landlord, you may establish general guidelines and decline any applicant with specific negative indicators. To avoid discrimination claims, you must define and follow these guidelines for all applicants. Indicators of financial irresponsibility include:

• Debts in collection
• History of Bankruptcy
• Vehicle Repossession
• Charge-off of credit cards

Follow Fair Credit Reporting Act Principles

The Fair Credit Reporting Act provides guidelines regarding the privacy, accuracy, and fairness of an individual’s credit history. As a landlord, you must prove your identity when requesting credit reports. This prevents unauthorized individuals from accessing personal data. In addition to credit reporting procedures, be sure to understand and follow the Fair House Act, which protects applicants from discrimination based on demographics such as race, gender, or familial status.

Speak With The Applicant

Looking solely at an applicant’s credit history can give you an inaccurate representation of their reliability. If you have taken the time to meet the applicant and get an unsavory report that doesn’t seem to represent the person you met, pick up the phone. Your tenant may be attempting to repair a poor credit history or working through a family situation that affected their credit score. You can add protective clauses to the lease agreement for such individuals.

With a thorough credit history, you can compare two applicants to determine which one has the potential to be the best tenant.

Read Also:

• 5 Tips to Manage Personal Credit Efficiently
• A Complete Guide to Business Loans and Debt Consolidation