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Choosing responsible and financially stable tenants is critical to running a thriving rental business. And the best way to make this determination is to perform a credit check on them. More specifically, it means you’ll need to evaluate their credit report. But how do you go about doing so?
One option is to accept credit reports directly from tenants, saving you time and effort. However, it’s not a wise plan to adopt, as it can potentially lead to tremendous problems with missed rent payments down the road.
What’s Wrong With Accepting Credit Reports Directly From Tenants?
Asking tenants to supply their own credit reports is a risky move for three reasons. The report may a) be missing critical information, b) contain outdated information or c) contain altered information.
Let’s explore each in detail.
Missing Information
A tenant can easily and quickly send a screenshot of their credit score from their bank or a credit services provider like Credit Karma or Borrowell. But while a credit score conveys helpful information, it’s typically not enough to allow you to make an informed decision about their ability to make timely rent payments.
To properly screen applicants, you need an extensive breakdown of their credit history, which these reports usually lack. By only examining the credit score and other basic details, you miss out on additional vital information that can aid in your decision-making.
Here are some things to look for in a tenant credit report:
- Late payments
- Total outstanding debt
- Type of debt
- Amount of credit used relative to the available credit limit
- Accounts sent to collection agencies
- The length of time each account has been active
- Passed bankruptcies
Outdated Information
It’s common for some tenants to provide the same credit report to multiple landlords as they seek out a rental property. Naturally, this is a wise move as it saves them time and money – they don’t need to pay a fee each time they wish to access their report.
However, from the landlord’s perspective, this practice isn’t ideal. The reason is that if you accept such a report, there’s a chance that it lacks up-to-date details.
A person’s credit standing can change dramatically over time, sometimes even during a short period. As a result, the credit report you assess may not accurately reflect their current circumstances.
Suppose a tenant’s credit report was prepared and printed a month ago. In that case, there’s no way to tell if their credit situation has improved or deteriorated since then. They could have had a major account shut down by a creditor. Or maybe they’re teetering on the verge of bankruptcy. You won’t know unless you’re looking at the latest credit report possible.
Remember that Credit bureaus (Equifax and TransUnion) can take 30 to 45 days to update a person’s credit report. This is how often they typically receive new information from lenders.
Altered Information
In some cases, an applicant may knowingly and willingly provide you with an altered credit report in a deceitful attempt to secure tenancy.
As the digital world advances, it’s becoming increasingly accessible and affordable for individuals to modify their credit reports. With the help of sophisticated editing software, they can even create new ones from scratch. And if they don’t possess the necessary software and skills to craft a fake report themselves, they can pay someone to do it.
Here’s an example of a company that purports to create fake documents, including credit reports, for a price:
Granting an applicant’s tenancy based on a false credit report can wreak havoc on your rental business. For example, in the Greater Toronto Area, a man was charged with fraud for allegedly using fake identification to rent multiple properties and turning them into illegal rooming homes.
To carry out the scheme, he’d submit altered credit reports and fake references to the property owners. Once he could occupy the property, he’d stop paying rent and list the rooms on Kijiji.
One landlord remarked that she didn’t see any red flags when initially reviewing the document but later discovered that they were fake. She was lucky to be able to evict him due to a fire code violation. Otherwise, the scheme would have potentially gone undetected for a longer time. At this point, the man was already facing criminal charges brought on by multiple landlords, with others trying to evict him.
This case is a striking reminder of the risks of accepting credit reports directly from tenants. Unfortunately, since tenants may obtain credit reports from numerous sources, it can be challenging to determine whether a particular document is legit.
Why Landlords Should Run Their Own Credit Reports?
Reviewing credit information is a critical step in the screening of prospective tenants. And it’s especially crucial to ensure that the data is accurate, relevant, and timely. As a landlord, you can reduce the risk of choosing tenants likely to fall behind on rent by personally pulling up their credit reports.
Accepting a report from a tenant that offers only the credit score and little else won’t provide you with the details you need to make an informed decision. You’ll need to dig into the details and examine late payments, credit utilization, debt type, etc. It’s hard to do that without the aid of a comprehensive report.
The vast majority of tenants are honest and won’t act to mislead you with false credit details. However, you must remain objective and minimize the risk to your business by running credit reports on your own. That way, you’ll protect yourself against unscrupulous applicants who won’t hesitate to provide fraudulent documents.
How Can Landlords Run Credit Checks That Are Accurate And Trustworthy?
Landlords can use SingleKey to run credit and background checks on prospective tenants. Each tenant report offers an upgraded Equifax credit report that includes a wealth of information about an individual’s credit history. You can view their credit score, debt summaries, late payment history, outstanding debt, bankruptcies, collections, and more.
SingleKey also includes a background check that scans for criminal history, past evictions, employment history, social media profiles, etc. With all this data at your fingertips, you’ll be able to accurately predict an applicant’s payment habits.
Final Thoughts
Given a credit check’s vital role in the tenant screening process, it’s worth doing it right. And that means personally running a credit report for each applicant you’re considering for tenancy.
But you’ll need a way to perform this critical task efficiently and effectively or risk getting buried in paperwork. The rental business is a dynamic and fast-paced industry where every minute counts. Quality tenants are not keen on waiting weeks to find a place to live. And they certainly don’t want to deal with tedious credit checks that take days to complete. They’ll gladly move on to the next available property.
Luckily, Singlekey provides you with a comprehensive credit report in just five minutes! Your report will be ready for you to read in the time it takes to make a cup of coffee, with all the crucial details you need to help you find the ideal tenant.
If you’re a busy landlord (or dislike coffee), you can send invites to prospective tenants via email to fill in their applications. Once complete, you’ll gain access to the reports right away!
Get a Reliable Report In Only 5 Minutes
SingleKey’s reports only take five minutes! The rental space is a fast-paced environment, where every minute counts before the good tenants move on. Landlords can expect to receive reliable reports in the time it takes to make a good cup of coffee.
Busy landlords, or simply ones who dislike coffee, have the option to send invites to prospective tenants via email to fill in their own applications. Reports are ready once completed!
