Are you planning to find renters for your property? Perhaps you are looking for a place to rent, and need some help understanding what documents and things you need to get in order prior to filling out an application. When you want to rent it is standard for the landlord to run a credit and background check. Why do landlords run credit and background checks and what does it mean for your ability to rent an apartment or home?
Tenant Credit Check
A tenant credit check is designed to help landlords understand financial habits of people wanting to rent their property. Tenant credit checks are important as they help to minimize the risk to a landlord by offering a lease to someone that may not be able to pay rent on time or in full. If you are a landlord and you are running credit checks, compare their payment history to current payment history. The past may not be the strongest indicator of why you should or should not offer a rental agreement to this person, but it can certainly help you judge their financial habits and if they will be able to pay their rent.
Running a credit check on your applicants allows you to have peace of mind. When you let people know you do credit checks, many of them will feel comfortable with it, or some will wince. If you plan to run credit checks you need to do them for each applicant to make the application process fair.
Which Credit Report is Best?
Experian, Equifax, and Transunion all have different numbers. It is rare for you to see all three credit scores be the same across the board. The FICO score you want can be pulled from all three, but some companies like to stick to Experian because they feel the majority of creditors will report to them monthly. Each of the reports normally has the same information on them, but there can be some slight data differences based on the reporting of creditors. The prospective tenant will need to pull their own reports to make sure they are in good standing before they consider applying for a rental agreement.
Reading a Credit Report
As a landlord, you need to make sure you know which elements to look for in a credit report. One of the most important elements of the credit report is the payment history. Does the potential renter have a history of late payments? If they have a history of paying bills on time, it shows they are normally going to be a good tenant. However, if you have some glaring late payments in the credit report, you may want to move on from this applicant in favor of one that does have a solid payment history.
The primary cause of eviction is late rent payments. If you see someone with late payments on their report, you need to be careful before moving forward with them. You may want to alter the lease to be a monthly contract instead of a long-term contract as it might help you to keep the renter paying on time.
Improving Your Credit Score
If you are planning to rent a property, one of the first things you need to do is focus on improving your credit score. A higher credit score with a strong payment history helps to show potential landlords that you are financially responsible and you can handle making your monthly payments. Here are some tips to help you improve your credit score:
- Do not carry more than 30% of the credit limit available on your credit cards
- Always pay on time
- Pay more than the minimum amount due
- Do not open new credit accounts
A credit and background check is used for more than just rent agreements, employers often use them to determine if they want to hire you. Taking care of your credit is one of the most important things you can do for yourself financially.