When you have an empty rental unit, it can create a sense of urgency for landlords who depend on their rental income which can lead to unsound or rash decisions when it comes to tenant selection.
While having your property vacant can be a drain on your income, having a bad tenant can be worse. That's why successful landlords utilize background checks to help protect them from renting to less-than-desirable tenants who will end up costing them in the long run.
An effective background check on prospective tenants will provide you with more information than just previous landlords. You can get valuable information such as:
- Criminal Records
- Eviction Records
Quicken reports that tenants should budget 25 percent of their gross monthly income for rent but the US Department of Housing and Urban Development reported that 10 percent of renters spend more than 50 percent of their income on rent. A Credit Check will provide you with additional information that will help you gauge the prospective tenant's ability to pay rent on time each month.
Here is how you can increase your chances of renting to desirable tenants who will stay longer, pay their bills, and take better care of your rental property.
Before You Move Forward
1. Have An Adequate Rental Application
Before you meet your prospective tenant in person, be sure to have a rental application that they can fill out (you can actually do this before meeting them by using a free rental application form that is done online). A good rental application will provide you with the key information you will need to perform a background check. Specifically:
- Full legal name, social security number, date of birth, contact information, driver's license number and state of issue
- Current and previous addresses, dates of residence, contact information for current and former landlords.
- Current income, dates of current and past employment, the names and contact information of current and former employers.
- Banking and credit references for a credit check.
- Contact information for three personal references.
2. Get Permission to Check Credit
It is against the law to check the credit of someone whose permission you have not obtained. The Fair Credit Reporting Act requires that you have the prospective tenant fill out a credit report authorization form to avoid a privacy violation which can result in more than $1,000 in fines. If your prospective tenant does not want to give you permission to perform a credit check, you are not required to rent to them.
3. Personal Interview
When you meet with your prospective tenant for the first time, it is a critical opportunity for you to ask pertinent questions as well as do a more personal evaluation of them. How are they dressed? How is their language? Are they respectful and respectable? Friendly? Experts suggest you ask these 10 important questions to help you determine whether or not this would be an ideal tenant:
- Why are you moving?
- Do you have previous landlord and employer references?
- Will you agree to a background check?
- What is your monthly income?
- Who will live with you?
- Have you ever been evicted?
- Do you have pets?
- When are you moving?
- Do you have plans to sublet?
- Can you pay the first month's rent and deposit before move-in?
You can also find out what kind of person they are by asking questions about their regular life. For example, if you find they talk positively about their work, chances are greater that they will continue to be gainfully employed.
Executing Background Checks
1. Check Credit Score
A tenant's credit score can help you determine their ability to pay rent. By obtaining a credit score from the three main consumer credit agencies - Experian, TransUnion, and Equifax - you will get a list of things like:
- outstanding balances
And, of course, their credit score. According to experts, tenants with a credit score of less than 620 are considered as a "high risk of default."
If - based on the information you receive through their credit reports - you decide to reject the applicant, you are required to give them notice of an adverse action. While this can be done orally, a written or electronic adverse action notice will provide you with proof that you did submit it to the applicant. The FTC advises that the adverse action should include:
- the name, address, and phone number of the consumer reporting company that supplied the report;
- a statement that the company that supplied the report did not make the decision to take the unfavorable action and can't give specific reasons for it; and
- a notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get a free report from the company if the person asks for it within 60 days.
2. Run A Background Check
A tenant background check can help you further determine if the applicant is a good match for your rental by providing information such as:
- Criminal Record
- Sex Offender's Registry
- Credit Report
- Proof of Income
- Previous Landlord's References
- Eviction History
- Employment History
The Fair Credit Reporting Act requires that landlords use an approved Consumer Reporting Agency to obtain these records. While these reports can cost as much as $50, many landlords require the prospective tenant to pay an application fee that will either offset or cover the cost.
3. Check References
Applicants will likely have people they can use for personal references that will speak highly of them as a tenant which is why it is very important to also check their employer and previous landlord's references.
By checking with their employer and previous landlord, you can find out how truthful they were on their rental application as well as whether or not they make enough income to pay their rent on time.
For the employer, you can ask questions like:
- Is this full- or part-time work? Permanent or temporary?
- What is their rate of pay?
- How long have they been employed there?
Previous landlords can give you a wealth of information that credit and background checks cannot. When speaking with previous landlords, you can ask questions that help you get a clearer picture of them as a tenant.
- Did they fulfill their lease agreement?
- Did they pay their rent on time?
- Did they leave the property in good condition?
- Were there any complaints about them?
- Would they rent to the same tenant again?
While personal references will likely have some bias, you can still ask questions of them that will give you a good idea of the applicant's general attitude, reliability, and morale because personal references have known them longer.
When screening applicants for your rental, resist the temptation to rent to them without first doing these background checks. VerticalRent has made it much easier and more convenient for landlords to perform these tasks as well as for landlords and tenants to communicate. If you would like more tips on applicant pre-screening and background checks, we invite you to read our Tenant Screening Guide or contact us today to find out how we can help you get the right tenant in your rental.