The promise of a rental property is great, providing a steady income stream. When you think about it, you probably picture tenants who pay on time and treat your property respectfully. Unfortunately, the dream does not always match reality.
Many parts of the country are now experiencing high eviction levels. The Eviction Lab at Princeton University reports downright scary numbers for landlords in some cities. For example, Gainesville, FL, Las Vegas, NV, Houston, TX, and Minneapolis, MN have eviction filing rates that are 40% or higher compared to 2020. Over the past year, in the 10 states and 36 cities tracked by the Eviction Lab, more than 1 million eviction filings have been recorded.
Avoiding situations like these requires thorough tenant background checks from top background screening companies. In this guide, we will explain how to screen tenants for rental properties, what you should include in your tenant screening process, and what the key components of a tenant screening service are. We’ll also share the legal framework and some best practices to help you comply with applicable laws and find the best renters.
Understanding Tenant Background Checks
Tenant background checks provide you with the information you need to evaluate potential tenants. Conducting these checks is a critical step in the screening process, and it can reveal financial stability, rental history, criminal records, and more.
Ignoring the warning signs can lead to significant financial and legal problems. Most importantly, tenant background checks can help you find respectful tenants who pay on time and treat your property well.
What Matters Most in a Background Check?
Background checks on prospective tenants can include several components. What matters most? Here are some of the key factors you should consider:
- Credit History: A tenant's credit report provides insight into their financial responsibility. Look for a history of on-time payments, manageable debt levels, and the absence of major financial issues like bankruptcies or foreclosures.
- Rental History: Check for a history of on-time rent payments, property care, and positive relationships with previous landlords.
- Income Verification: Verify that the tenant's income can cover rent payments comfortably. One metric used by many landlords is that rent should be 30% of the tenant's gross monthly income or less.
- Criminal Background: While policies regarding criminal history must comply with fair housing laws, it's important to be aware of any serious offenses for the sake of the safety of all tenants and the property.
- Sex Offender Registry Check: This search checks if the applicant appears on any sex offender registries.
- Eviction History: Previous evictions can be a red flag, indicating potential issues with rent payment or adherence to lease terms.
- Employment Stability: A stable employment history suggests that the tenant is more likely to have a consistent income to cover rent payments.
- Personal References: While not as objective as other factors, personal references can provide additional insights into the tenant's character and reliability.
By prioritizing these checks, you can get insight into a tenant’s past behavior. While that does not guarantee there will not be problems in the future, it can surface warning flags that might indicate trouble ahead.
Using the Information You Find in a Tenant Screening
When you find information that gives you pause, you need to be careful. There are several laws regarding the use of information from background checks.
The Fair Credit Reporting Act (FCRA)
The FCRA is a federal law that significantly impacts the tenant screening process. Before conducting a credit check or background check, you must get written permission from the prospective tenant.
If the information found in a credit report leads to a rental application denial, you are legally obligated to inform the applicant through an adverse action notice. This notification must include the specific reasons for the denial and information about the credit reporting agency used.
The Fair Housing Act
The Fair Housing Act prohibits discrimination based on race, color, national origin, religion, sex, familial status, or disability. You must apply your screening criteria consistently for anyone who applies to rent your property to avoid the appearance of discrimination.
Some states have expanded on these guidelines, adding additional categories, including sexual orientation, gender identity, and source of income.
State and Local Regulations
You want to be aware of state and local laws that may impact how you approach background checks. For example:
- Criminal Record Restrictions: Some states have implemented “ban the box” laws that limit how criminal records can be used in housing decisions.
- Eviction Record Access: Certain states restrict access to eviction records, particularly those from many years ago, to prevent unfair bias against applicants.
- Information Handling: Various states have enacted laws governing the collection, storage, and handling of applicant data, including background check information.
You should always consider their circumstances when evaluating a prospective tenant. Late payment and evictions spiked during the recent pandemic but may no longer be applicable. In the case of criminal records, laws often require that criminal history not be an automatic disqualifier and obligate you to do an individualized assessment.
You should check with your legal counsel to ensure you comply with all relevant laws and regulations.
How Do You Run a Background Check on a Tenant?
What should I include in my tenant screening process? There are several steps for running a tenant background check:
- Obtain Written Consent: Written permission from the applicant is required or running a tenant background check.
- Collect Information: Gather the applicant's full name, date of birth, Social Security number, and current address. This information is required to run an accurate background check.
- Choose a Screening Service: Select a reputable tenant screening service or credit reporting agency, such as Command Credit.
- Submit the Request: Enter the applicant's information into the chosen screening service's platform.
- Pay the Fee: Screening services charge a fee for their reports. In many locations, you can pass this cost on to the applicant as an application fee.
- Review the Results: In particular, ;ook for areas of concern.
- Verify Information: Cross-reference the information in the background check with what the applicant provided on their application form. Any discrepancies should be addressed with the applicant.
- Make a Decision: Based on the results of the background check and other screening criteria, decide whether to approve or deny the application.
- Adverse Action Notice: If you decide not to rent to an applicant based on information in their background check, you are required by law to provide them with an adverse action notice. This notice should explain the reason for the denial and provide information about the screening service used so they can dispute information if they believe it is wrong.
Best Practices for Tenant Background Checks
To ensure a fair, ethical, and legally compliant tenant screening process, you can follow the following few best practices.
Get Legal Guidance
Check with your legal advisor to ensure the process you use for tenant background checks complies with all federal, state, and local laws. Failing to comply can put you in financial and legal jeopardy. It is your responsibility to stay up-to-date on fair housing laws and adapt to any changes.
You should also review your screening practices periodically to ensure they continue to meet any new restrictions or regulations.
Create Written Policies
Your screening policy should be in writing and include the criteria you use and how you use it. This helps ensure consistency and can help protect you from discrimination claims, especially if you have a legal review.
You should also be transparent about your policies. Communicate your screening process and requirements upfront.
Verify All Information
Don’t rely solely on the information you get from a background check. You will want to verify information, such as by contacting employers to verify income and employment status, talking to previous landlords, and checking references.
Look at the Bigger Picture
Not everybody has a perfect credit history or past. When you find red flags, consider them in the context of the prospective tenant’s entire profile. A blemish from 20 years ago may no longer be relevant. You will need to consider extenuating circumstances or evidence of rehabilitation for past issues.
Document the Process
Keep records of your applications and screening process. This should include any communication you have with potential renters and the reason for your decision.
If you deny someone based on the information you learned as part of a background check, you are required by law to provide them with an adverse action notice, explaining your decision.
Keep Information Private
You should always handle personal information confidentially to protect the privacy of potential tenants. There may also be legal requirements about privacy that impact background checks.
What Do Landlords Use to Screen Tenants?
You want a tenant screening service that is reliable and accurate and provides you with the information you need to fairly evaluate potential renters. So, how do you go about doing that? Maybe you’re asking questions like these:
What is the most reliable background check site?
What is the most accurate background check website?
What is the most reputable background check company?
The answers might vary depending on the type of information you’re looking for. The best service for you will depend on your preferences. Here are a few factors you should consider:
- Comprehensiveness of reports
- Accuracy of information
- Compliance with fair housing laws
- User-friendliness
- Pricing structure
- Speed of results
- Customer support
Are Background Checks Online Legit?
Online background check tools can be highly valuable for tenant screening, but not all services are created equally. For example, Command Credit enables you to pull credit reports from one or all of the major credit reporting agencies, Equifax, Experian, and TransUnion. You need to ensure that any service you use gets its information from legitimate and reputable sources, such as court records, government databases, and credit agencies.
Top background screening companies will share their information sources so you can evaluate them, including ensuring compliance with the FCRA and other fair housing laws. As a landlord, you can be sued if your application is rejected due to inaccurate or illegally reported information, so choosing a service is an important decision.
Frequently Asked Questions—FAQs
Where do you find potential tenants online?
There are a variety of places where you can find potential tenants. Some of the more popular places include rental listing websites like Zillow, Trulia, Apartments.com, and Apartment Finder. You can also use social media to share your listing or local online classified ads. While not as popular as it once was, Craigslist may still be a viable option.
What are some red flags to watch for during the tenant screening process?
While this can vary depending on your situation, some common red flags include:
- Inconsistent or Incomplete Information: Discrepancies between the application, background check, and verbal communications can indicate dishonesty.
- Poor Credit History: Late payments, high debt-to-income ratio, or recent bankruptcies may suggest financial instability.
- Frequent Job Changes: This could indicate unstable income, potentially affecting the ability to pay.
If a prospective tenant disputes the information in the background check, you should provide information about how to handle disputes, such as contact information for the credit reporting bureau or screening service.
Can I charge an application fee to cover the cost of the background check?
In most states, you can pass on tenant screening costs to applicants, but you’ll want to check in our jurisdiction. For example, Vermont and Massachusetts explicitly ban application fees. Other states cap the amount you can charge. In some locations, landlords must provide proof with an itemized receipt showing how the application fee was used.
To learn more about tenant background checks, contact Command Credit. Get the credit history you need for new tenants to make better decisions and protect your income stream.