Red Flags To Look Out For When Running a Tenant Credit Check

by Lesly Gregory | Published: May 2, 2022

When you have a rental property available, finding the right tenant is a process. First, you have to show interested prospective tenants the home. Then, they need to fill out a rental application. Next, comes tenant credit checks which may seem straightforward but are not always.

Tenant screening is about more than just a final credit score. The entire tenant credit report can give you an idea of how responsible they are with money and whether they're likely to pay rent on time. But, it's up to you to know how to look at all that information and assess whether this tenant is right for you as the property owner.

There are more red flags than just a lower credit score to take into account. When screening all your rental applicants, do you know what to look for?

Why should landlords run credit reports on prospective tenants?

There are a number of reasons why landlords should conduct credit checks on tenants. The most important reason is that it helps to ensure that you're renting to a responsible and reliable tenant. A good credit score and strong credit history are indications that the tenant is likely to pay rent on time and take care of the property.

Credit inquiries show landlords how a tenant has behaved in the past as both a renter and just someone with bills to pay. Landlord credit checks give you insight into a tenant's likelihood of making timely payments when it comes to all types of bills, from rent to utilities to paying down debt.

Credit reports vs. background checks

Although they're two different reports, tenant credit reports and criminal background checks usually have overlapping information. As a landlord, you'll want to pull both types of screening reports when assessing prospective tenants.

A background check focuses on a renter's criminal history. It can shed light on someone's character beyond whether or not they manage their money well. Any criminal convictions made against your potential renters will be in this report, but may also include additional information. With a background check, you can screen tenants' employment history, educational background and even see civil records like marriage or birth certificates.

Credit reports provide tenant information directly related to their financial situation. This includes their ability to make on-time payments, eviction reports and more, all rolled up into that final credit score.

Paying for a credit check.

How much does it cost to run a credit check?

Most credit check services charge between $30 and $50 for a tenant credit check. However, some landlords are able to get access to credit checks for free if their potential tenants run the report for them.

While most local laws require landlords to pay for the credit check, the three major credit bureaus allow individuals to run their credit reports, for free, once per year. If they haven't done so yet, it could be an ask you make of prospective tenants. However, if they can't provide a credit report, you'll need to cover the cost of your rental properties yourself.

Paying yourself back for credit checks

Even if you end up paying a credit reporting agency yourself for credit history, there's a way to reimburse yourself for the cost. When a prospective tenant fills out a rental property application, most local laws allow you to charge them an application fee.

This fee must go to any costs related to reviewing their application, whether that be administrative costs on your end, or paying for a rental credit check. Knowing the cost of a credit check in advance, you can roll that fee up into the application fee and essentially reimburse yourself for the expense.

Where can I get a tenant's credit report? offers a tenant screening service for landlords that includes credit checks.

There are also three credit bureaus that offer a credit report — Experian, TransUnion and Equifax. Each allows you to run a tenant credit check, but it's best to look at reports from all three since there's a slight variation between credit scores.

You can also use a third-party tenant screening service to consolidate all the necessary information landlords need for an effective tenant screening process. These types of tenant screening services usually provide more than just a credit report. They'll also often include a background check, an eviction report and even a digital rental application.

Landlord associations may also offer tenant screening services to members.

Landlord looking over credit report

What should a landlord look for in a tenant's credit history?

Reviewing any type of screening report for prospective tenants requires landlords to look closely at all the information in the report. It's not just about that single credit score, but rather a variety of informational bits that show any property manager what that specific tenant might be like as a renter.

As their prospective landlord, make sure you look at each tenant's credit report carefully, taking note of any and all red flags, including these biggies.

Low credit score

A low credit score is a major red flag. It indicates that the tenant is not always responsible with money. This could mean that the tenant is more likely to fall behind on rent payments.

You're looking for a minimum credit score of 670, which you can get by averaging out the scores within the three major credit bureaus.

Anything below this minimum should prompt you to dig a little deeper into the tenant's credit report before leasing them your rental property. Something slightly lower may still be OK by your standards, but again, you want to get a more complete picture of this tenant's habits when it comes to making payments of any kind before deciding they'll be your new tenant.

High debt-to-income ratio

A high debt-to-income ratio indicates that the tenant may have trouble making rent payments. This is because the tenant already has a lot of other debts that they need to pay each month.

School debt, car payments and any personal loans all fit into this category. Totaling up all of these monthly expenses for a tenant, you may realize they'll have trouble ensuring there's enough left over to cover the rent on their salary alone. If that's the case, you may also want to look at bank statements to confirm they have enough savings to pay rent each month.

Delinquent accounts in rental history

If the tenant has a history of delinquent accounts, this is a red flag. These accounts are any that are missing payments or paid late at any point. This is a solid sign that the tenant has, at some point, had difficulty paying bills on time and isn't reliable. Bad credit like this usually goes hand-in-hand with a low credit score, which is why the tenant screening process is so important.

A landlord should also look for any other red flags in the credit report tied to making payments within a certain timeframe since these can indicate financial difficulties that may still exist, impacting a tenant's ability to pay rent.

Late payments

If the tenant has a history of late payments in regards to any type of bill, this is another red flag. Even if they were frequently late on paying their water bill, it's a bad habit that could bleed over into rental payments. It's also an indicator that the tenant isn't responsible with money in general.

To get a little more insight into this particular red flag, you may want to contact their past landlords and get confirmation that paying rent on time was not an issue in the past.

Derogatory marks

Derogatory marks link directly to past financial misfortune and are a huge red flag for landlords. These can include anything from late bills to bankruptcy to a collections agency coming after them for a loan. The problem is that derogatory marks linger on credit reports, sometimes for several years, so you're seeing an issue a tenant had in the past that doesn't impact their financial situation today.

Based on the type of derogatory marks that surface on a credit report, you may want to talk to the tenant and get more information on where the situation currently stands. This way, you can make an informed decision on what the tenant credit check actually means to you.

Past evictions

While an eviction itself won't show up as a line item on a credit report, if that evicting landlord decides to seek payment by going through a collections agency, it will become one of those derogatory marks.

When this happens, there's almost always an impact on the tenant's credit scores. It's also a red flag you need to ask your tenant about. In theory, the tenant will have already disclosed that they have an eviction in their past and provided you with an explanation as to the details. It may not have been their fault and isn't something you're worried about.

However, if they didn't disclose the information, that itself is a red flag. What else have they not told you? Time to dig deeper into their credit report.

A tenant with no credit will need help.

What if my prospective tenant doesn't have credit?

If your prospective tenant does not have credit, you may want to consider other options for screening, such as a criminal background check or reference check. You can also ask them to supply supporting documentation to give you the information you need to assess their financial stability.

You'll most often run into this situation with first-time renters. Tenants fresh out of college, or who are living away from home for the first time, may not have owned a credit card long enough to accrue credit.

Likewise, if your tenant has never had any bills in their name before, they'll have no record of how well they made payments on time. A credit check may end up not being a reliable source of information, but it's OK to look elsewhere.

Other ways to assess a tenant's ability to make timely rent payments

When in need of supporting documents to flush out non-existent credit history, ask tenants for:

  • Pay stubs from the past three months
  • Bank statements from the past three months
  • Reference letter from their previous landlord (or whoever they lived with last)
  • Reference letter from current employer

Each of these additional pieces of information can flush out what's missing on tenant credit reports given that that tenant hasn't yet had time to establish their own credit.

Ways tenants can compensate for bad or no credit

If you find yourself interested in renting to a tenant with slightly bad credit, or no credit to speak of, there are other ways to get some reassurance that rent will always be covered. Instead of relying on credit, have the tenant:

  • Bring in a co-singer
  • Pay more months in advance than just the first and last
  • Pay a larger security deposit than just a single month's rent
  • Find a roommate

These options can get written into the lease agreement so that you have an added layer of security built into renting to this particular tenant, even without an ideal credit report.

Get the complete picture of a tenant first

The single number that starts off any credit report is a very one-dimensional view of any tenant. While it's an important number, there are often other red flags hidden throughout a credit check that will tell you more about this potential renter.

To get the full picture of who this person is, and if they'll most likely make on-time rent payments, dig deeper. Look at the full credit report, conduct a full background check and spend time talking with the tenant. It may end up that they're the perfect person for your rental property, but you wouldn't have known that by simply judging them by their credit score.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Categories: Landlords

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