How to perform & understand tenant credit checks

See how to perform a credit check, what specialized services to use, and how to interpret a credit report and scoring systems.
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June 5, 2024
min read
How to perform & understand tenant credit checks

Without a concrete process in place for assessing the risk of a tenant failing to keep up with rental payments, you could be leaving yourself vulnerable to financial loss and ongoing legal issues.

Conducting tenant credit checks is an essential part of this process, but you’ll need an understanding of what platforms you can use, how to interpret a credit score and supplementary information, the red flags to look out for, and potential extenuating circumstances for bad credit history.

In addition to this information, you can use this guide to see the seven steps to performing a credit check and learn about credit bureaus, credit scoring companies, and specialized credit scoring systems for tenant applications.

What is a tenant credit check?

A tenant credit check is a report of your prospective tenant’s history of financial responsibility, which you can use to assess their ability to pay rent and adhere to the terms of the lease. 

You can also use it to inform how much the security deposit should be to mitigate any potential risk.

A credit check typically involves obtaining a credit report from one or more of the major credit bureaus, such as Equifax, Experian, or TransUnion (see our seven-step breakdown of how to credit-check prospective tenants for more on specialized services, below).

This report includes:

  1. A credit score: A snapshot view of the tenant's creditworthiness. 
  2. Credit history: Details of past and current credit accounts, including credit cards, loans, and mortgages.
  3. Payment history: Records of on-time and late payments, defaults, and any accounts in collections.
  4. Public records: Information on any bankruptcies, foreclosures, or legal judgments against the tenant.
  5. Credit inquiries: A list of entities that have requested the tenant's credit report.

A strong credit history with a high credit score generally indicates a lower risk for you as their landlord or property manager, while a poor credit history might raise concerns about how the tenant will meet their financial obligations.

Note that, depending on your location, you may not have legal access to all the information described above. For example, in the UK, you can only access public information, bankruptcies and debts as determined by a court—not credit limits or missed rental payments.

Portion of a sample tenant credit report by Experian
Here’s a portion of a sample tenant credit report by Experian, as part of a larger tenant screening report by Zillow.

How are credit bureaus different from credit-scoring companies?

Credit scores are often generated by specialized services. Credit scoring companies, like FICO and VantageScore, analyze the data collected by credit bureaus to provide scores based on their proprietary models.

Credit scores make it easier for you to compare different people and build repeatable processes you can share across your management team. You can use them to make faster and more consistent decisions about tenant applications while saving you from potentially having to go through pages of detailed credit reports.

Fico score range
FICO average score ranges from Experian.

What’s the difference between a tenant credit check and a tenant background check?

While tenant credit checks focus on financial history and creditworthiness, tenant background checks provide a more comprehensive view of a tenant’s history.

For example, a tenant background check typically includes information about:

  • Criminal records: A cross-reference of databases and court records to highlight any past criminal convictions
  • Employment verification: The tenant’s current and past employment status
  • Rental and eviction history: Past rental addresses, any history of prior evictions, and possibly landlord references

Public records: Legal judgments, such as lawsuits or tax debt claims

When should you perform a tenant credit check?

In most cases, it’s best to credit-check your prospective tenants as the final step before proceeding with signing a lease, which means requesting one only once you’ve shown the property in person.

This gives the tenant the chance to confirm they’re happy with the property and your house rules, and they’re fully committed to renting before authorizing the check. 

Conducting a credit check at this stage is preferable because you don’t want to run one without good reason. Besides the cost you may incur, the tenant has to provide personal information like a social security number. Also, running a credit check can have a minor negative impact on their credit rating.

Note that you might also wish to perform a credit check before renewing the lease for an existing tenant, especially if they’ve had issues with payments in the past.

The red flags to look for in a tenant credit report

When reviewing tenant credit reports, typical areas you should look out for include the following issues:

1. Low credit scores

While a low credit score indicates financial limitations, some tenants may have low scores due to past circumstances they’ve since overcome. Also, their rating could be lower because they simply have little credit history—such as no loans, no credit cards, or no previous rented properties. 

So, look at the overall context of the score, including recent improvements and current financial stability, and don’t immediately rule out an applicant because of a low score.

2. Late payments

Repeatedly failing to make payment cut-offs on credit cards or utilities is a red flag that should be reflected in the credit score. However, there may be a justification for some late payments in a tenant’s credit history.

For example, medical emergencies, temporary job loss, or other unforeseen circumstances can sometimes lead to late payments. Understanding the reasons behind late payments can provide a more balanced view of the tenant’s financial reliability.

3. High levels of debt

If a person’s existing debt is such that it could impact their ability to afford the monthly rent, you could have reason to look for an alternative tenant.

However, there may be mitigating factors worth considering. For example, the applicant could have new employment that’s significantly altered their spending power. Also, consider the type of debt—increasing credit card debt could be more problematic than long-term student loan debt.

4. Derogatory marks

Derogatory marks are negative indicators on a credit report that may signify a legal process as the result of financial mismanagement, for example:

  • Accounts in collection: When a debt is sold to a collection agency after the original creditor fails to collect it
  • Car repossessions: Typically occur because the tenant defaulted on an auto loan
  • Bankruptcies: These can remain on a tenant’s credit report for up to 10 years
  • Foreclosures: Failure to pay their mortgage
  • Tax liens: Government claims against property for unpaid taxes

5. Outstanding debts to previous landlords
If rental payments go unresolved, the landlord can report the details to a credit bureau. This information will appear on the report as a delinquent account in the tenant’s rental history and is a significant red flag.

How to run a credit check on a prospective tenant in 7 steps

Prospective tenants can provide their own credit report which you should accept as long as it's within the timeframe according to your local landlord-tenant regulations. Here are the steps you should follow if you’re initiating the credit check yourself:

  1. Obtain written permission
    Before running a credit check, you must obtain your prospective tenant's written consent. The easiest way to do this is to include a clause in your rental application form.
  1. Collect necessary information
    Gather essential data from the tenant. This will depend on your location and the applicable data protection laws and related processes. For example, in the US, you’ll usually need to provide the tenant’s social security number and date of birth, whereas in the UK, you’ll need to provide their full name, date of birth, and address history.
  1. Choose a credit reporting service
    Select a reputable credit reporting or specialized tenant screening service, some of which are provided by or partnered with the three main credit bureaus. For example:
  • TenantAlert offers credit reports from TransUnion, Experian, or Equifax as well as screening reports and coverage for lost rent, damages, and legal fees.
  1. Verify your identity and purpose
    Many credit reporting agencies will require you to verify your identity and the legitimacy of your rental business as part of the registration process, so be prepared to provide documentation to prove you’re a landlord or property manager.
  1. Request the credit reportUsing your chosen service, request the tenant's credit report. Ensure all the information you provide is accurate to avoid any delays or reporting errors.
  1. Review the credit report
    Now use the report to look for key indicators such as credit score, payment history, or red flags.
  2. Make a objective decision based on data
    Use the information from the credit report, along with other screening criteria like employment verification and rental history, to make an informed decision about the tenant’s suitability.
Pro tip:
If you need to reject an application, you need to be observant of legal requirements and provide proper notification, which you can do by following these guidelines on how to formulate a professional tenant rejection letter.

Mitigate risk with tenant credit checks and property protection technology 

Understanding and performing tenant credit checks is crucial for minimizing the risks associated with renting out your property, and, by following the steps outlined in this guide, you can save time as you make informed decisions about your prospective renters.

To protect not only your property but your residential rental business, you should look to select a service that facilitates a scalable process that you can easily repeat across multiple tenant applications.

Also, remember that not every red flag is a reason to immediately reject an applicant. However, if you do need to turn down an application, be sure to provide proper notification and adhere to legal requirements.

Also, consider using a property protection solution like Minut, which monitors for excessive noise, alerts you to parties, and detects cigarette smoke.