A background check is conducted by a landlord to assess the creditworthiness of potential tenants before signing a leasing agreement. This assessment typically involves a credit check, which involves reviewing a credit report from a credible reporting agency. The landlord will be concerned with the applicant’s payment history, outstanding debts, and credit utilization. A good credit score generally indicates reliable payment behavior while a poor credit score may raise concerns about an applicant’s ability to pay rent on time. This information helps the landlord make informed decisions regarding tenant selection and lease arrangements.
How Landlords Can Do a Credit Check on Potential Tenants
When looking for a new tenant, a landlord may want to run a credit check to assess their financial reliability. This article explains the types of credit reports a landlord can obtain and how to avoid violating fair housing laws.
Types of Credit Reports Landlords Can Obtain
- Experian: This is one of the three major credit bureaus in the United States. Experian’s credit report includes information such as a tenant’s credit score, payment history, and outstanding debts.
- Equifax: Equifax is another one of the three major credit bureaus. Their credit report contains similar information to Experian’s, including a credit score, payment history, and outstanding debts.
- TransUnion: TransUnion is the third major credit bureau. Their credit report also includes a credit score, payment history, and outstanding debts.
- Tenant Screening Reports: These reports are specifically designed for landlords. They include a credit score, payment history, and criminal background check.
Avoiding Fair Housing Violations
When conducting a credit check, landlords must comply with fair housing laws. These laws prohibit discrimination based on race, color, religion, national origin, sex, familial status, and disability.
To avoid violating fair housing laws, landlords should:
- Use the same credit check criteria for all applicants.
- Not set a minimum credit score requirement.
- Consider factors other than credit score, such as rental history and income.
- Provide a written explanation to any applicant who is denied housing based on a credit check.
Table: Landlord Access to Credit History
| Type of Credit Report | Landlord Access |
|---|---|
| Experian | Yes |
| Equifax | Yes |
| TransUnion | Yes |
| Tenant Screening Reports | Yes |
Factors that Affect a Tenant’s Credit Score
A tenant’s credit score is a numerical representation of their credit history and is often used by landlords to assess their financial responsibility and reliability as a tenant.
Several factors can affect a tenant’s credit score, including:
- Payment history: Making timely payments on loans, credit cards, and other financial obligations is one of the most important factors that affect a credit score. A history of late or missed payments can significantly lower a credit score.
- Outstanding debt: The amount of debt a tenant has relative to their available credit is also a factor that can affect their credit score. Having a high debt-to-credit ratio can lower a credit score.
- Length of credit history: The longer a tenant has a credit history, the more data lenders have to assess their creditworthiness. A longer credit history is typically associated with a higher credit score.
- Credit mix: Having a mix of different types of credit, such as revolving credit (credit cards) and installment loans (mortgages, auto loans), can positively impact a credit score.
- Hard inquiries: When a lender checks a tenant’s credit report as part of an application for credit, it is recorded as a hard inquiry. Too many hard inquiries in a short period can negatively affect a credit score.
| Positive Indicators | Negative Indicators |
|---|---|
| Regular and timely payments on all financial obligations (rent, utilities, loans, etc.) | Late or missed payments |
| No history of bankruptcy or foreclosure | Bankruptcy or foreclosure in the past |
| Low credit utilization (owing less than 30% of the available credit limits) | High credit utilization (owing more than 30% of the available credit limits) |
| Consistent and sufficient income to cover monthly expenses | Frequent job changes or periods of unemployment |
Landlords can use a tenant’s credit score to make informed decisions about whether to rent to them and what security deposit or rent amount to charge.
Common Misconceptions about Landlord Credit Checks
Many people believe that landlords can only run credit checks on potential tenants. However, this is not true. In many jurisdictions, landlords are also allowed to run credit checks on current tenants.
Another common misconception is that landlords can use credit checks to discriminate against potential tenants. This is also not true. Landlords are prohibited from discriminating against potential tenants based on their race, color, religion, sex, national origin, familial status, or disability.
Reasons for a Landlord to Run a Credit Check
- To assess the financial stability of a potential tenant
- To see if the potential tenant has a history of paying rent on time
- To identify any potential red flags, such as bankruptcies or evictions
- To help determine the amount of security deposit to charge
What Information Is Included in a Landlord Credit Check?
A landlord credit check will typically include the following information:
- The tenant’s name, address, and Social Security number
- The tenant’s credit score
- A list of the tenant’s credit accounts
- The tenant’s payment history
- Any bankruptcies or evictions that the tenant has filed
How to Prepare for a Landlord Credit Check
If you are applying for a rental property, there are a few things you can do to prepare for a landlord credit check:
- Get a copy of your credit report from each of the three major credit bureaus.
- Review your credit report carefully and correct any errors.
- Make sure you have a good credit score.
- Be prepared to explain any negative items on your credit report.
Landlord Credit Check Laws by State
The laws governing landlord credit checks vary from state to state. The table below provides a summary of the landlord credit check laws in each state.
State Landlords Can Run Credit Checks on Current Tenants Landlords Can Use Credit Checks to Discriminate Alabama Yes No Alaska Yes No Arizona Yes No Arkansas Yes No California Yes No Hey there, readers! Thanks for sticking with me till the end of this article. I hope you found it informative and helpful. Just a heads up, landlord-tenant stuff can be complex and vary from place to place, so it’s always a good idea to check local regulations and consult with professionals if you’re unsure about anything. Keep your eyes peeled for more landlord-related tips and tricks coming soon. Until then, take care and keep your rental properties thriving! Feel free to drop by again whenever you need a dose of landlord knowledge. Cheers!