How to Obtain a Credit Report
Private credit reporting agencies collect and sell credit files and other information about consumers. Many landlords find it essential to check a prospective tenant’s credit history with at least one credit reporting agency to see how responsible the person is managing money.
What's in a Credit Report
Credit reports contain a goldmine of information (covering the past seven to ten years) for prospective landlords. You can typically find out if a particular person has ever been: late in paying rent or bills; convicted of a crime; evicted; or involved in another type of lawsuit such as a personal injury claim. Depending on the type of report you order, you may also get an applicant’s credit, or “FICO” score, a number that indicates the risk that an individual will default on payments.
How to Get an Applicant's Credit Report
To run a credit check, you’ll need a prospective tenant’s name, address, and Social Security number or ITIN (Individual Taxpayer Identification Number). While three credit bureaus have cornered the market on credit reports (www.equifax.com, www.transunion.com, and www.experian.com), you cannot order the credit report of a potential tenant directly from these bureaus. Instead, you’ll need to work through a credit reporting agency or tenant screening service. Find one by searching online (type “tenant screening” into your browser’s search box), or get recommendations from your state or local apartment association. Look for a company that operates in your area, has been in business for a while, and provides you with a sample report that’s clear and informative. Fees depend on how many reports you order each month.
Who Pays Credit Check Fees
It’s legal in most states to charge prospective tenants for the cost of the credit report itself and your time and trouble. Any credit check fee should be reasonably related to the cost of the credit check —$30 to $50 is common. California sets a maximum screening fee and requires landlords to provide an itemized receipt when accepting a credit check fee.
It is illegal to charge a credit check fee if you do not use it for the stated purpose and pocket it instead. Return any credit check fees you don’t use for that purpose.
Savvy landlords only run credit check on those who are genuine contenders (for example, exclude and reject applicants whose income doesn’t reach your minimum rent-to-income ratio). That way, you won’t waste your time (and prospective tenants’ money) collecting fees from unqualified applicants.
What You’re Looking for in a Credit Report
In general, be leery of applicants with lots of debts—so that their monthly payments plus the rent obligation exceed 40% of their income. Also, look at the person’s bill-paying habits, and, pay attention to lawsuits and evictions. If your only choice is to rent to someone with poor or fair credit, protect yourself by getting good references from previous landlords and employers; requiring a good-sized deposit, as much as you can collect under state law ; and asking that a creditworthy cosigner cosign the lease.
Rejecting an Applicant Because of a Negative Credit Report
If you do not rent to someone because of negative information in a credit report, or you charge someone a higher rent because of such information, you must give the prospective tenant the name and address of the agency that reported the negative information. This is a requirement of the federal Fair Credit Reporting Act. (15 U.S. Code §§ 1681 and following.) You must also tell the person that he has a right to obtain a copy of the file from the agency that reported the negative information, by requesting it within 60 days of being told that your rejection was based on the individual’s credit report.
The Importance of Handling Credit Reports Carefully
Under federal law, you must take special care that credit reports (and any information stored elsewhere that is derived from credit reports) are stored in a secure place where only those who “need to know” have access. (“Disposal Rule” of the Fair and Accurate Credit Transactions Act of 2003, known as the FACT Act, 69 Fed. Reg. 68690.) In addition, you must dispose of such records when you’re done with them, by burning them or using a shredder. This portion of the FACT Act was passed in order to combat the increasing reports of identity theft. It applies to every landlord who pulls a credit report, no matter how small your operation. The Federal Trade Commission, which interprets the Act, encourages you to similarly safeguard and dispose of any record that contains a tenant’s or applicant’s personal or financial information. This would include the rental application itself, as well as any notes you make that include such information.