Imagine if there were a simple way to reduce the risk of missed payments for your rental property by 75%.
There is.
A rental tenant background check can uncover those with a troubled payment history and give you valuable information about potential renters. Renters with a positive rental payment history have a default rate of just under 6%. However, those missing a single payment in the past have a default rate of 23%. Those with two or more missed payments have a default rate of more than 35%.
It’s not just renters or families, either. According to the Mortgage Bankers Association, commercial delinquency rates are increasing, with defaults rising in the second half of 2024. So, whether you’re planning to rent to an individual or execute a lease for a commercial company, running a background check helps significantly reduce risk.
Why Background Checks Are Essential for Landlords
Whether you're leasing one unit or managing multiple properties, tenants represent both a financial opportunity and a potential liability. A solid screening process can help reduce the chances of:
- Missed rent payments
- Property damage
- Eviction proceedings
- Lease violations
A rental tenant background check gives you a data-backed understanding of an applicant’s history, including credit, criminal, employment, and rental, so you can make better decisions.
How to Do a Background Check on a Tenant
Follow these steps.
Step 1: Start with a Rental or Lease Application
Begin your screening process by collecting a detailed application. At a minimum, the form should include:
Full legal name
- Social Security Number (or Individual Taxpayer Identification Number)
- Current and past addresses
- Employer name and income information
- References (both professional and personal)
Include a section stating your intention to conduct a background check and get a signature for consent.
Step 2: Get Prior Written Consent
While you can legally run a business credit report on any business, you need prior written permission to conduct a credit screening on an individual. This includes tenant applicants.
Failing to obtain permission violates the Fair Credit Reporting Act (FCRA) and could result in fines or legal action. Always provide tenants with a disclosure explaining what information you plan to gather and how it will be used.
“Anyone who uses or obtains a copy of your credit report under false pretenses may be subject to civil and criminal penalties.” - Consumer Financial Protection Bureau
Step 3: Verify Identity and Income
Before pulling any reports, confirm the applicant’s identity. Request a government-issued ID and match it to the name and SSN/ITIN on the application.
You’ll also want to verify their income by asking for:
- Recent pay stubs
- Bank statements
- Employer contact information
For a business, you’ll want the legal business name and address. Identity verification has become a crucial step. There are a lot of scams out there.
Step 4: Conduct a Thorough Rental Tenant Background Check
Now it’s time to run the actual rental tenant background check through a reputable screening service that complies with FCRA guidelines. Here’s what to include:
Credit Report
This shows the applicant’s payment history, outstanding debts, and any accounts in collections. Pay close attention to:
- Consistency of payments
- Total debt load
- Judgments or bankruptcies
Given the link between late payments and higher default risk, this is a critical step.
Criminal Background Check
Check for convictions, not just arrests, and filter results by what’s legally permissible in your jurisdiction. You’ll want to avoid any discriminatory practices and focus on convictions that are recent, relevant, and severe.
Before doing so, however, check your state’s ban-the-box regulations and any laws on running or using criminal background checks.
Eviction History
Prior evictions are a big warning sign. Look for prior eviction filings or judgments.
Employment and Rental References
Verify with current and past employers that the applicant is stably employed. You can contact previous landlords to ask about rent payment history, behavior, and whether they would rent to this tenant again.
For business leases, you want to ensure the company is financially healthy.
Step 5: Evaluate Results Consistently
Now that you’ve gathered all the data, it’s time to assess it against your rental criteria. Red flags include:
- Two or more missed rent payments in the last year
- Recent evictions or legal disputes with landlords
- Significant debt-to-income imbalance
On the other hand, a clean payment history and strong references are green lights. Just make sure you apply your standards consistently across all applicants to avoid fair housing violations.
Step 6: Follow the Proper Protocol for Denials
If you decide to reject a tenant based on their background check, the FCRA requires a specific process:
- Send a pre-adverse action notice, including a copy of the report and a summary of rights
- Wait a few days (typically 5–7) to allow the applicant to dispute any errors
- Send a final adverse action notice if you choose to proceed with the denial
Keep documentation of these communications to protect yourself legally and make sure you follow the advice of your labor attorney.
Step 7: Store Information Securely
Rental applications and background reports contain sensitive personal data. Use secure storage and limit access to authorized personnel. Destroy records when no longer needed, following your policies.
Get Compliant Rental Tenant Background Checks
How to do a background check on a tenant doesn’t have to be complicated. With Command Credit, you get detailed, legally compliant rental tenant background checks to reduce your risk.
Protect your properties and tenants. Get in touch with Command Credit to access fast, affordable tenant screening solutions you can trust.