It’s a safe bet that one of the biggest, if not the biggest reason, you own real estate property is to make income off of it. In order to do so, you have to either sell that property at a profit, or collect rent from your tenants.
To do the latter, your tenants have to pay you, which is not always a guarantee. You can increase your odds of getting rent every month on time by running on tenant credit report on everyone who applies to rent your space.
It might be tempting to go off of a gut feeling about whether an applicant is a good credit risk, but it’s better to get confirmation in writing. The last thing you want is to assume someone will pay, only to find out he or she is late with their rent month after month and putting you in the uncomfortable position of having to evict them.
Get a tenant credit report for all of your applicants, it’s worth it. Here’s what you need to know.
To run a tenant credit report, you’ll need the following: the prospect’s name, current address and social security number. It’s important to remember that you must give the applicant permission to their credit report. Typically, that authorization will be on the rental application, but just confirm you have their permission to be on the safe side.
Depending on how many applicants you draw, the cost of running all of these credit reports can add up. With that in mind, you may want to ask applicants to cover the cost of the credit report.
What to keep an eye out for
The point of getting a tenant credit report is to get an idea of prospect’s likeliness to pay their rent on time. The report will show you if the person has a history of paying bills (or rent!) late, has ever been evicted or arrested and if they have established enough of a credit history. Your report may also come with the prospect’s credit score, which usually ranges between 300 to 850. The higher the credit score, the less risk involved. Don’t put all of your decision weight behind the score though; it only shows the applicant’s financial responsibility, not necessarily how good of a tenant they’ll be.
If things don’t work out
You may have to reject an applicant because his or her credit report included too much negative information. When that happens, there are a couple of things you’ll have to do: provide the applicant with the name of the agency that reported the negative information and let him or her know they can get a copy of the agency’s file that reported the negative information within 60 days of the rejection.
Running a tenant credit report can give you good insight on a prospective tenant’s financial history. It’s important to remember that the report is just one piece of the puzzle. Use the credit report as a guide to making your decision, not the as sole deciding factor.