Tenant Management

Top credit screening services for landlords

woman at laptop using top credit screening services for landlords

The ability to run screening reports on prospective tenants is one of the most powerful tools landlords have when it comes to choosing great renters.  Used correctly this information helps confirm applicant identity, evaluate financial fitness, and get an overview of rental and employment histories.  The top credit screening services for landlords provide all this and more. We’ll discuss the range of information available to landlords, how to factor this into a decision-making process, and what other steps to take before accepting a tenant. 

We all want tenants who pay on time, co-exist well with those around them, and take care of our property.  Screening the credit, employment, and rental history of prospective tenants is invaluable in the process of selecting the best tenants. 

Landlord or Tenant – who orders the report?

While it is possible for landlords to order screening reports, there are several benefits to having applicants order and pay directly for credit screening reports.  In our experience tenants like making payment directly as opposed to handing over cash or a check, and as an added benefit they may also be able to see and/or share the reports once they’ve made the purchase.  Landlords are also better off this way because it gets around the need to receive and store hard copies of sensitive personal information such as social security numbers.  In addition, savings in time are attractive, as it is not necessary to collect screening fees and order reports.  Online product management tools have the added benefit of making applications accessible from anywhere, and archived in the landlord’s account.

Getting started with a credit screening service

If you decide to use a credit screening service as part of your screening process (and, obviously, we suggest you do), then the first step is to get permission – in writing – from the prospective tenant to access their financial and personal information.  Good applications should incorporate this authorization into the signing of the form. 

Deciding who pays for and orders screening reports is another strategic consideration.  Therefore we believe the best approach is to have the tenant both apply and purchase screening reports through an online service of your choosing.  Recommendation:  do not accept forwarded or printed reports from other sources, as they can be faked, altered, or be for someone different entirely.  

Key benefits of using credit screening services

Services providing credit screening and background reports help landlords assess prospective tenants by offering the following:

  1. Metrics suggesting how a person approaches paying bills and meeting commitments, based on their payment history.
  2. Indicators on the applicant’s ability to pay the rent.  Landlords often use a rule-of-thumb that a tenant should not be accepted if the rent is more than 1/3 of total income.  More relevant, in our opinion, is whether a tenant can cover rent and other debts on a monthly basis.  A credit screening report will show you whether an applicant has a sufficient income-to-debt level to cover all expenses.
  3. An outline of financial liabilities such as car loans, mortgages, and credit card debts.
  4. A window into a person’s life path where it comes to career trajectory and housing track record.
  5. Help confirming identity and detecting fraud, by linking social security numbers with birth date, residence history, and financial records.

We suggest you use one of many online services that provide not only credit screening reports, but access to background and criminal information, as well as other tools such as online applications and rent collection. Please take a look at our list of top credit screening services for landlords.

In practice:  Using the information screening reports provide

Credit Data:

When choosing a credit screening service, or reading a report you’ve received, we recommend you look for the following indicators of financial fitness:

  1. Credit score. You may want to set a minimum score, or a threshold below-which you require larger deposit or a co-signer. For example, you might want to set criteriasuch as:  <550 not considered, 550-650 conditional, >650 acceptable.
  2. Recent credit applications, which may be a sign that an applicant is having trouble with cash flow or is open to taking on more debt.
  3. Number of accounts open and the amount of available credit, which suggests how much debt an applicant could quickly and easily take on.
  4. Existing credit balances, and the associated required monthly payments.  This is very important in evaluating how much of a prospect’s income is available to be paid in rent.
  5. Missed or late payments.
  6. Collections or accounts closed with a balance due.
  7. Bankruptcies
  8. Foreclosures

Background Details:

Good screening reports can also provide a range of useful information aside from specifics on credit history and debt.  We suggest you look for reports that provide the following:

  1. Residence and employment history:  
    • Look for longer tenures and consider carefully if there has been excessive moving around.
  2. Identity fraud indicators:
    • Some reports feature prominent warnings about potential fraud, while it’s necessary to look more carefully for signs on others.  
    • Some indicators to look for are newly issued Social Security numbers and residence history that doesn’t match the information you’ve been provided by the applicant.
  3. Background information:
    • Evictions
    • Lawsuits
    • Judgments
  4. Criminal Record:
    • *Note that localities such as Seattle now disallow consideration of this as criteria. Make sure you are aware of local laws.
    • Sex-Offender registry
    • Terrorist watch list
    • A record of national and local arrests and convictions

Potential red flags when screening a tenant

As you analyze the information you’ve received take heed of the various potential red flags, which could be good reason to decline an applicant:

  1. Evictions, bankruptcies or foreclosures where new positive history hasn’t been established.
  2. High debt-to-earning ratio
  3. Insufficient income to cover rent
  4. Chronic or recent late payments
  5. Collections
  6. Lack of verifiable employment
  7. Lack of verifiable rental history, or derogatory feedback having communicated with past landlords.
  8. Criminal convictions
    1. * You may want to consider surrounding circumstances, what type of offense it was, and how long ago the conviction occurred.                                                

Next steps

Once you’ve reviewed the credit screening report we always recommend that you take the following steps before offering a unit to a new renter: 

  1. Call rental references
  2. Call employment references
  3. Interview applicant about the backstory for any information that isn’t clear or that is concerning.

Conclusion

Many online services bundle credit and background screening with features that help the tenant management process.  As we’ve noted, many have additional benefits such as marketing tools, applications, rent collection, lease documents, and maintenance management features.  It is often possible to find free software tools, with reasonable additional fees for added features, if desired.  In our business the safety, ease, and efficiency these products offer are highly beneficial.  We encourage you to research a service that is right for you.

Online property management products will streamline the screening process by offering you marketing, application, reports, rent collection and more.  We prefer to use one of these more comprehensive services.   Please take a look at our list of top credit screening services for landlords:

Disclosure: Some of the links in this post are affiliate links and Landlord Gurus may earn a commission. Our mission remains to provide valuable resources and information that helps landlords manage their rental properties efficiently and profitably. We link to these companies and their products because of their quality, not because of the commission.

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About Eli Secor

Eli comes from a family of real estate investors, dating back several generations. He currently manages his own multifamily property, apartment buildings for clients, and commercial spaces. He has particular expertise in the construction and maintenance arena, having spent almost 20 years in the construction fields.
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