The best forecaster of future behavior is past behavior. This is why credit check and criminal background check are so important. You will get a better understanding of how responsible and reliable your prospective tenant is. You can never have too much information. All of the information you gather will help you make an informed choice when selecting a tenant.
So you might be asking yourself what is a credit report? A credit report is a compilation of information on how someone handles their credit and debts. It includes information on how much debt they have accumulated. If they pay their bills on time, partially and other relevant information on payments. Where they live and work, as well as if they have filed bankruptcy and if they have any lawsuits.
Remember you need a lawful purpose and permission in order to pull someone else’s credit report. So always have a written and signed permission from the prospective tenant before pulling their credit. You will need their full name, address, date of birth and social security number in order to identify them to the credit reporting agencies.
The three major reporting agencies are:
- Equifax
- Experian
- TransUnion
There is usually a fee for getting the credit reports. So do not cut corners when it comes to spending money on screening. Trust me, the cost of an eviction will be way higher compared to these small fees. Ask a landlord who has had nightmare experiences with tenants they most likely didn’t property screen their tenants.
There are a few things you have to look for in a credit report. The first thing is the credit score. The score is a single number that summarizes the tenant’s credit history. Credit scores range from 300 to 850 and the higher the credit score, the better. A high credit score indicates a tenant is financially responsible. A credit score below 500 means that the prospective tenant has a history of late or missing payments. It would be a good idea to continue looking for tenants. If they have a credit score between 500 and 680 it means that they have occasionally had late payments in the past. You would need to look more closely at their other financial information before choosing them. A credit score over 680 is a good one. It means that they have been consistent with their payments and they are responsible. An excellent credit score would be between the ranges of 750 – 850.
Do not accept a tenant solely on their credit score. Consider the whole financial summary look at the details and always look for evictions and red flags.