How to Check a Tenant’s Credit History: Best Practices for Landlords

As a landlord, choosing the right tenant is essential to maintaining a successful and profitable property. One of the most effective ways to evaluate a prospective tenant’s reliability is by checking their credit history. A credit report offers a detailed look at how the tenant handles financial obligations, which can serve as an indicator of whether they will consistently pay rent on time and follow lease agreements. 

In this blog, our team at RiverTown Realty will cover why a tenant’s credit history is crucial, how to check it legally, and how to interpret the key elements of a credit report to protect your property and income.

Why Tenant Credit History is Critical for Landlords

A tenant’s credit history is one of the most telling indicators of their financial responsibility. By reviewing a prospective tenant’s credit report, you can better understand their payment habits, how they manage debt, and whether they are likely to be a reliable renter. Here’s why checking credit history is so important for landlords:

1. Assessing Financial Responsibility: A tenant's credit report provides insight into how they manage their overall financial commitments. If a tenant has a history of paying bills on time and managing debt responsibly, it’s a good indication that they will also pay rent consistently.
2. Predicting Rent Payment Behavior: A tenant with a strong credit history is more likely to make timely rent payments. On the other hand, a history of late payments or outstanding debts might indicate that the tenant could struggle to meet their rental obligations.
3. Minimizing Financial Risk: Checking a tenant’s credit history helps you minimize the risk of financial losses. Tenants with poor credit could pose a higher risk of defaulting on rent or causing property damage, leading to costly eviction processes or legal disputes.
4. Gauging Long-Term Stability: Tenants with a solid credit history are more likely to have long-term financial stability, which can reduce tenant turnover and help you maintain a consistent rental income.

By prioritizing tenant credit checks as part of your screening process, you can protect your property from potential tenants who may pose a financial risk and find responsible, long-term renters.

How to Check a Tenant’s Credit History Legally

As a landlord, it’s essential to follow legal guidelines when checking a tenant’s credit history to ensure compliance with federal and state laws. The Fair Credit Reporting Act (FCRA) regulates how landlords can use credit reports, so understanding and adhering to these regulations is critical to avoid legal complications. Here’s a step-by-step guide to legally obtaining a tenant’s credit history.

1. Obtain Written Consent from the Tenant

Before you can request a credit report, you must have the tenant’s written permission. This is typically done as part of the rental application process, where the tenant agrees to background and credit checks. Without this consent, pulling a tenant’s credit report would violate privacy laws and expose you to legal risks.

2. Choose a Tenant Screening Service

Several reliable tenant screening platforms provide landlords with access to credit reports in a compliant manner. Some of the most popular options include:

• Experian Connect: Allows landlords to request and view a tenant’s credit report directly, with the tenant’s consent.
• TransUnion SmartMove: Provides a comprehensive screening report that includes a tenant’s credit score, tenant background check, and eviction history.
• Equifax: Another major credit bureau that offers tenant screening services, including credit reports and credit scores.

These platforms ensure that the credit check process is compliant with the FCRA, providing landlords with peace of mind.

3. Verify the Tenant’s Identity

Before running a credit check, it’s important to verify the tenant’s identity to avoid any mix-ups or errors. This step ensures that the credit report you receive belongs to the correct individual.

4. Access the Credit Report

Once you’ve obtained consent and verified the tenant’s identity, you can request the credit report through your chosen screening service. The tenant will typically be notified that the credit check is being conducted, and you will receive the report directly from the service.

5. Provide an Adverse Action Notice if Necessary

If you decide not to approve a tenant based on the information in their credit report, you are legally required to provide them with an adverse action notice. This notice informs the tenant of the decision, explains the reasons for the denial, and provides information about how they can obtain a copy of their report and dispute any inaccuracies.

Following these steps ensures that you check a tenant’s credit history legally and transparently, reducing the risk of legal disputes while protecting your interests as a landlord.

What a Tenant’s Credit Report Tells You

A credit report for tenants provides a wealth of information about their financial behavior, offering insight into whether they will be a responsible renter. Let’s breakdown of the essential parts of a credit report that landlords should focus on.

1. Credit Score

The credit score is a three-digit number that represents a tenant’s creditworthiness. Ranging from 300 to 850, a higher score indicates stronger financial responsibility. For landlords, this is one of the quickest ways to gauge whether a tenant is likely to meet their rent obligations.

A tenant’s credit score range offers a snapshot of their overall financial health, helping landlords quickly assess the risk of late payments or defaults. However, a credit score should always be considered alongside other factors like rental history and income verification to get a complete picture.

2. Payment History

The payment history section of the credit report shows how consistently a tenant has made payments on their existing credit accounts, such as credit cards, loans, or utility bills. A history of missed or late payments can be a red flag, indicating that the tenant may have difficulty making timely rent payments.

• Late Payments: Frequent late payments can signal financial instability or irresponsibility.
• Delinquent Accounts: If the tenant has delinquent accounts, this could indicate a high likelihood of future payment issues.

3. Debts and Liabilities

The credit report will also list the tenant’s outstanding debts, including credit card balances, loans, and other liabilities. It’s important to review this information to understand the tenant’s overall financial health. Tenants with significant debt may struggle to pay rent, especially if their debt-to-income ratio is high.

• High Debt: Tenants with high debt may have difficulty covering rent along with their other financial obligations.
• Debt-to-Income Ratio: A high debt-to-income ratio suggests that a tenant’s income is heavily allocated to paying off debts, which could affect their ability to afford rent.

Reviewing this section helps landlords gauge whether a tenant can reasonably afford rent while managing other debts.

4. Public Records

Credit reports may also include public records such as bankruptcies, tax liens, and civil judgments. These records provide insight into any significant financial challenges the tenant has faced. For landlords, a history of bankruptcy or outstanding liens could indicate that the tenant is not financially stable enough to maintain regular rent payments.

By understanding these key sections of a credit report, landlords can better assess a tenant’s financial situation and make more informed decisions about whether to approve their rental application.

How to Interpret Credit Scores for Rental Applications

Interpreting credit scores is an essential part of the tenant screening process. While the credit score gives a snapshot of the tenant’s overall financial health, it’s important to know how to use this information to make a final decision.

1. High Credit Scores (700 and above)

Tenants with credit scores of 700 or higher are generally considered low-risk renters. These tenants are likely to pay rent on time, maintain the rental property, and adhere to lease agreements. For these applicants, landlords can confidently move forward without requiring additional guarantees.

2. Moderate Credit Scores (650-699)

Tenants in this range may require further consideration. While they don’t pose a significant risk, it’s worth reviewing other aspects of their financial profile, such as their payment history and income verification, to determine if additional security measures, like a higher deposit, are necessary.

3. Low Credit Scores (Below 650)

Tenants with scores below 650 could be considered high-risk. They may have a history of missed payments, high debt, or other financial issues. In these cases, landlords may want to request additional security measures, such as a higher security deposit or a co-signer, to mitigate the risk.

4. When to Ask for Additional Guarantees

If a tenant’s credit score falls into the lower ranges or their credit report reveals financial instability, landlords should consider asking for additional guarantees. These can include:

• Higher Security Deposits: A larger deposit helps protect the landlord in case the tenant defaults on rent or causes property damage.
• Co-Signers: A co-signer with a strong financial profile can provide additional security for landlords in case the tenant cannot meet their obligations.

Understanding how to interpret credit scores and when to ask for additional guarantees helps landlords balance risk and reward when selecting tenants.

Protect Your Property using Tenant Screening with Credit Checks From RiverTown Realty

Ensuring that you select the right tenant is one of the most important steps to protecting your property and maintaining a reliable income stream. By understanding a tenant’s credit history, payment habits, and financial standing, landlords can make informed decisions that reduce risk and provide long-term stability. Thorough credit checks give you a detailed look at a tenant’s financial behavior and help safeguard your property from potential rent defaults or costly evictions.

At RiverTown Realty, we specialize in helping landlords with all property management services, including tenant screenings to ensure you find the most reliable renters. Our team is here to guide you through every step of the process, from reviewing credit scores to interpreting financial data, so you can make the best decisions for your property.

Protect your investment with our expert tenant screening services—contact RiverTown Realty today to learn how we can help you secure the right tenants and safeguard your property’s future.