Landlords judge a prospective tenant’s credit worthiness during a credit check.
Many landlords own the properties they rent out to tenants. If a tenant damages the property, or fails to pay the rent required to live in it, the landlord may be left with extra expenses related to the property. A landlord wants to ensure that he selects a responsible tenant who will take care of his property and pay the rent on time. Performing a credit check on a prospective tenant can give a landlord a reasonable indication of what to expect from that tenant.
Predictability
Landlords look at a potential tenant’s credit report for evidence that the candidate has established consistency, stability and predictability. Consistency is demonstrated by what a prospective tenant does over and over financially. If a credit check reveals that a borrower has on-time payments with several accounts, over several years, then she is consistent. Stability can be determined by a number of factors. The number of years on the job, the number of accounts open, and the payment history all contribute to stability. A potential tenant who can handle her financial obligations and works for the same employer long-term is a financially stable individual. Landlords check credit reports to predict the behavior of the person who will be renting the property.
Rental History
Landlords can run credit checks to learn more about a prospective tenant’s past rentals. The rental history of a tenant is used to determine a tenant’s behavior in future rental situations. Any landlord who reports a tenant’s payment history to a credit bureau, will show up on a credit check. Landlords can check a credit report to see if any money is owed to a previous landlord. A landlord can use rental history data to see where a tenant has lived and make inquires concerning those rental agreements.
Debts
A tenant’s debts have an effect on the tenant’s ability to afford a particular rental. The tenant should be able to pay her rent along with all of her other financial obligations each month. A landlord may check a potential tenant’s credit to find out how much debt a tenant has. Once the landlord knows the prospective tenant’s debt load, he can compare that to the income and determine if she can afford to rent the place.
Accounts
Credit reports contain both open accounts and closed accounts. Open accounts are usually revolving credit—where there is a payment due each month until the whole balance is paid off—like with a credit card. Closed accounts may either be paid in full or with a balance still due to the creditor. Credit checks that contain “satisfied accounts” are closed accounts that have been paid in full. A credit report detailing many accounts paid on-time greatly helps a potential tenant come out ahead in a credit check. Landlords look to see that the potential tenant has more accounts paid on-time than accounts that were not.
Bankruptcy
Landlords check credit reports to see if there are any bankruptcies. Bankruptcies remain on credit reports for up to 10 years. A bankruptcy record allows a landlord to see all of the accounts and companies included in the prospective tenant’s bankruptcy. There is a difference between a discharged bankruptcy (completed) and a pending bankruptcy (ongoing). A potential tenant with a discharged bankruptcy is usually a better risk than one with a pending bankruptcy. When a bankruptcy is pending, it is possible for a tenant to be relieved of all current financial obligations—including any remaining rental payments due to a landlord. For this reason, landlords check credit reports to be sure that there are no pending bankruptcy actions.
Foreclosures
Some landlords may perform a credit check to find out if there are any foreclosures in a prospective tenant’s past. A foreclosure is a legal action in which a lender repossesses a property. In many foreclosures, the borrower is left with a balance to pay even after the property is taken back and resold. A landlord may do a credit check to see if any monies are owed in the aftermath of a foreclosure proceeding.
Credit Bureaus
It is important to note that there are three different credit bureaus a landlord may use to run a credit check on a potential tenant. Those credit bureaus are Equifax, Experian and Transunion. The credit bureaus are independent of each other and each may contain different information from another bureau. A landlord can use any or all of the bureaus to check credit data of a potential tenant. Many landlords also charge a credit report fee to prospective tenants.
