Whenever you rent a house or apartment, you take a risk. If a tenant has trouble paying their rent or damages your property, it can get expensive fast. If you have to evict someone, the cost goes even higher. A tenant background check helps quantify the risk so you can make smarter decisions before you agree to a lease.
One key component of this process is the tenant credit check. Credit reports help you understand how applicants manage their financial obligations and whether they have a pattern of paying their bills on time.
What Is a Tenant Background Check?
A tenant background check is a screening report used by landlords to evaluate rental applicants. The report compiles consumer data from several sources, including credit bureaus, identity verification databases, and public records. Rather than relying only on interviews or personal references, landlords get objective information.
What Information Is Included in a Tenant Background Check?
A tenant background check helps establish identity and history.
Identity Verification
One of the first steps is to verify identity. Someone might appear to have a perfect record of paying their bills on time, but if they’re “borrowing” someone else’s name, you need to know. So, making sure you’re dealing with the right person is critical.
Identity verification may include:
- Legal name
- Social Security number verification
- Address history
- Search for aliases
Tenant Credit Check
A tenant credit check answers the question, “Does this person have a history of paying their financial obligations on time?”
Credit reports can show:
- Open credit accounts
- Payment history
- Balances and utilization
- Delinquencies or collections
If you see someone has used credit responsibly, you’re lowering your risk. If there’s a history of late or missed payment, the risk factor goes up.
Eviction and Housing Records
A tenant background check may also include public filings like bankruptcies or eviction histories. While a single eviction does not necessarily mean an applicant should be rejected, repeated housing disputes may signal a pattern that you’ll want to review carefully.
Criminal Record Searches
Some tenant screening reports also include searches of publicly available criminal court records. However, you’ll need to make sure you understand federal, state, and local laws. A blanket ban on anyone with a criminal record may violate the Fair Housing Act. The Department of Housing and Urban Development (HUD) recommends landlords consider the nature of the crime and how long ago it happened, rather than make a blanket denial.
These records may identify felony convictions or other court proceedings. Landlords should be aware that housing regulations and local laws can limit how criminal history is used in rental decisions. Some cities, like Seattle, have laws preventing landlords from using criminal history or arrest records to reject applicants.
Legal Compliance: What Landlords Must Know About the Fair Credit Reporting Act
Landlords who use consumer reports during tenant screening must comply with the Fair Credit Reporting Act (FCRA), a federal law that governs how consumer information is collected and used. There are three main requirements:
- The law requires landlords to have a legitimate reason for obtaining a consumer report. Screening a rental applicant qualifies as a permissible purpose.
- Landlords must also notify applicants that a screening report will be requested and obtain authorization before running a tenant background check. This disclosure is typically included in the rental application or a separate consent form.
- If a landlord denies a rental application or changes rental terms based on information from the report, the applicant must receive an adverse action notice, explaining that the decision was based on a consumer report and informing the applicant of their right to review or dispute the information.
HUD has also started scrutinizing the use of automated screening tools, AI, or blanket policies. Landlords should have a written screening policy reviewed by their legal counsel and apply it equally to all applicants.
You will also want to check state and local laws. For example, a California law now requires landlords to provide tenants with a copy of any tenant screening reports used.
Making Better Rental Decisions
If you need reliable tenant background checks and tenant credit checks, Command Credit offers on-demand consumer reports without having to sign up for a long-term subscription. After you have permission from the applicant, you can run credit checks online quickly and easily.
Make better decisions about your rental properties and reduce your risks. Contact Command Credit today to get started.