Updated on

What Landlords Need to Know About Credit Checks

Credit reports are an important part of the tenant screening process that provide an overview of a potential renter’s money management skills.

Don’t fall into the trap of renting to someone who consistently pays their rent late. When a potential tenant applies for your rental, one of the first things you should do is pull their credit report. It will give you almost all the information you need to determine if that person will be a reliable source of rent payments moving forward.

What is a tenant credit check?

A credit check is a comprehensive report showing you all of a potential renter’s revolving and debt-bearing accounts, how often they’ve paid (and if those payments were on time), plus a history of evictions, foreclosures, bankruptcies, and sometimes criminal background. You’ll also see a credit score.

Why are credit checks important for tenant screening?

Credit checks provide a complete snapshot of an applicant's money management history—and can indicate whether or not they'll be a frustrating tenant. Consistently late payments on credit cards and other bills tend to bleed over into rent payments. You don’t want to miss your own mortgage payments because your renter keeps paying late, or not at all.

How do I pull a tenant’s credit report?

To run a credit check on a potential tenant, you can either pull one yourself or hire a third-party service to do it. Pulling a credit report isn’t free, but generally landlords include that cost in the tenant’s application fee. Credit reports come from the three main credit bureaus, each with their own rules:

  • Experian doesn’t charge a fee for a landlord to pull a report.
  • Transunion charges $30, and the report includes a criminal background check and a credit recommendation.
  • Equifax charges $15.95, but you have to pull the report through the National Association of Independent Landlords.

Some states, such as Wisconsin and New York, require you to accept a credit check provided by the applicant themselves (as long as it was pulled in the past 30 days). You can still run your own credit check if you’d like, but you can’t charge them for it. Make sure to check the tenant screening laws in your state to make sure you’re in compliance.

Do I need permission to run a credit report?

Although pretty much everything online will tell you that you need a tenant’s permission to run a credit report, this is not true. The Fair Credit Reporting Act (FCRA), which governs credit checks and other consumer reports, doesn’t require landlords and other people with a “legitimate business need” for the information to get permission. Of course, you’re always welcome to get written approval from a tenant anyway if it makes you feel more comfortable.

What should my screening criteria be?

For credit scores, look for one that’s in the average to above-average range, about 670 to 850. To avoid liability and potential fair housing complaints, it's incredibly important to create your tenant screening criteria in advance—and then apply them uniformly to every applicant. (You can have different criteria for different units, but you must apply the same standards to every person who applies to the same unit.)

When scrutinizing a prospective tenant's credit report, some things you might consider are:

  • A minimum credit score (typically, landlords are concerned about renting to tenants with a score below 620)
  • A maximum number of late rent payments in a 12-month period
  • Whether or not you'll rent to someone with a bankruptcy
  • Whether or not you'll rent to someone with a rental collection account

What are red flags on a tenant’s credit report?

When you’re reviewing an applicant’s credit report, pay special attention to any delinquencies or issues within the past two years. Watch out for consistently missed or late payments, any repossessed items like cars, foreclosures, and settlements or accounts closed by the creditor. Also check for any collections accounts, bankruptcies, and evictions.

What if my potential tenant has bad credit—or no credit at all?

A credit report doesn’t need to be perfect for someone to end up being a good tenant—especially these days, when substantial student loans can tank their score. In general, if an applicant is current on all their bills and doesn’t have recent missed payments, they should be fine. But if there’s anything that looks confusing, don’t hesitate to ask.

If your potential renter doesn’t have any credit—as is often the case with college students or international renters—ask them to apply with a guarantor or co-signer who will be responsible for paying rent if the tenant flakes. This is also an option for someone who has less-than-stellar credit. If you make this decision based on their credit report, you’re required by law to provide them with an adverse action notice.

Can I reject a tenant based on their credit report?

If a tenant’s credit report doesn’t meet your screening criteria, you can decline their application. Just remember that as part of the FCRA, you’re required to let them know you rejected them because of something on their credit report—an “adverse action notice,” in legal terms.

The information provided on this website does not, and is not intended to, constitute legal advice.