Since the best predictor of future behavior is past behavior, a clear credit history -- one free from late payments, bankruptcies and evictions -- gives the landlord some assurance that his tenant will pay rent on time. Running a credit check is relatively simple. You only need the applicant's personal details and his permission to screen his credit report. Give those details to a credit agency, and you can have a report back in as little as one day.
Please Sir, Can I Run A Credit Check?
The Fair Credit Reporting Act does not specifically state that a landlord needs a tenant's permission to run a credit check against him, but this is implicit in the language of the legislation. As a matter of best practice, have the would-be tenant sign and date a statement agreeing to the credit check before you contact a credit agency -- you may wish to consult a rental agent or an attorney for suitable wording. To order a credit check, you will need the tenant's name, address and social security number. Most landlords request this information as part of the rental application form.
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To Charge or Not to Charge
Some landlords charge the tenant a fee for carrying out the credit check while others absorb the cost themselves. This is a matter of personal preference. However, if you do take a fee, state law may restrict the amount you can charge. For example, California landlords may charge no more than their out-of-pocket expenses or a state-mandated sum, whichever is the lower.
First Screen the Agency
Many companies offer tenant screening services; you can find any number of agencies online. A reputable company will usually ask you to register upfront and provide your landlord credentials, such as personal identification and proof that you own the rental property. The credit company needs to verify that you are an actual landlord and not some frivolous person viewing another person's credit report, which is prohibited by the Fair Credit Reporting Act. A reputable agency should also ask you to scan or fax the tenant's signed consent form before running the check.
Fire Off the Information
Most agencies let you run a credit check by entering the tenant's information online. Simply follow the instructions on screen. Be careful to check all would-be tenants the same way. Screening some applicants, but not others, may leave you exposed to a claim for discrimination. Once submitted, your credit check may come through in minutes or within a few days. You will be able to see negative events, such as chronic late payments, bankruptcy and evictions, at a glance. Check also the tenant's debt load; a tenant who has committed a large chunk of his income to debt repayments may struggle to pay the rent.
Letting the Tenant Down Lawfully
You are free to decline a tenant because of his poor credit, but you must follow certain legal steps. Begin by writing to the tenant and explaining that you have refused his application because of his credit report. Spell out the exact reasons for your rejection -- ideally, you should identify specific adverse entries in the report. Under The Fair Credit Reporting Act, you must also give the tenant the name, address and telephone number of your credit agency and tell him that he has the right to request a free copy of his credit report within 60 days.