As a company that specializes in in-depth, detailed and vetted checks, including a credit check for tenants before renting to them, we always recommend that landlords run a credit check as part of the vetting process simply to ensure that they know who they are renting to. However, while we absolutely believe that these checks are necessary and useful, we will also admit that they could skew your view of a tenant unfairly if not interpreted carefully.
In the interest of fairness, we thought we would give you a few guidelines on what you should be considering when you get a credit check for tenants, and how you should be interpreting the results.
Allow Disclosure Upfront
Many landlords are choosing to charge a fee to run a credit check for tenants, and that’s a perfectly acceptable practice. However, if you are going to the trouble of charging fees and getting permission to run credit checks for tenants up front, it’s also a good idea to allow them to disclose any negative information upfront, and to take their honesty in this disclosure into account.
For instance, if a prospective tenant reveals that they know they have a low credit score, or that they were declared bankrupt a few years ago, and offers an explanation (for instance high medical bills, job loss or a bad business deal) be sure to take that into account when assessing their report.
Consider the Age of the Information
Just as there may be mitigating information about how your prospective tenant got into financial trouble in the past (and their willingness to disclose this upfront goes a long way to indicating their overall integrity), the age of the information on their report should be a factor too.
If you find negative payment information or a bankruptcy that’s relatively far in the past, and nothing recent, then you should be taking that into account too. If there is nothing recent to report, then chances are they’ve been keeping their financial noses clean, and they are probably still a good prospect as a tenant.
Bad Credit Happens to Good People
Perhaps the most important thing we want landlords to consider when they interpret their credit check for tenants is that bad financial events can happen to everyone. Even the most perfect tenant on paper may be living one paycheck away from bankruptcy, and that’s something a credit report won’t tell you. It’s something you may still find out after you sign the lease though, if they were to lose their job or have another unplanned financial disaster occur.
Bad financial decisions don’t necessarily mean tenants are bad people, particularly if the information is old, and they’ve been sticking to their obligations in recent months or years. It’s certainly of less importance than something like their recent rental history, or even their criminal record, which may point to other areas of concern.
Make sure that you take the whole picture into account when you assess credit information, and remember that it’s the overall background picture that you need to consider – not just a single number.