Hey! Would you like to have a serial killer as your tenant? How about a rapist or other criminal? Who you choose to harbor in your rental property is up to you, but in order to protect your investment and lower your risk, you need to screen your tenants. Besides talking to the tenant and having them fill out an application, credit and background checks are crucial to understanding who will be living in your rental. We’ll give you details on these checks, how you can do them online, and which website you can use (and cannot use) to perform these checks. Do you know what the Fair Credit Report Act (FCRA) is and did you realize that most of the “background check” sites and people finders on the internet cannot be used to screen tenants? Because it’s illegal…and we will explain why a little later.
There isn’t a law out there that forces you to do these checks; however, you would be foolish not to check. A nice squeaky-clean background check result certainly won’t guarantee you a problem free tenant. A successful credit credit doesn’t mean you’ll get perfectly on-time rent payments either. What you will get, however, is a great judgement of the person’s character and the level of risk you are taking on with the tenant. There is always a little bit of risk with real estate, just like any investment–that’s what makes these endeavors profitable of course. As the old adage goes, if it was easy, everyone would be doing it!
If your property is part of a HomeOwner’s Association (HOA), the bylaws may require owners to do background checks on their tenants, so be careful!
The Fair Credit Reporting Act (FCRA)
Because of the Fair Credit Reporting Act (FCRA), landlords are required to follow a certain procedure for tenant screening. The FCRA keeps you from haphazardly gathering information about a person and using it to judge their ability to rent.
Here is the FCRA process:
- Tenant fills out rental application form
- Tenant completes credit report authorization form. FCRA needs you to ask the tenant permission before credit check is ran. If the tenant refuses, you can deny their rental applications. The landlord is also responsible for recording the authorization given via a signature form that is filed away.
- Run a credit report across all 3 bureaus. These are TransUnion, Experian, and Equifax.
- Perform an FCRA approved background check online. Sometimes this is included with the credit check, but other sites offer this independently.
- Get personal/work references: consult their employer for income verification
Note: When doing a credit check, you’ll want to focus on more than just the credit score. Look for rental history, bankruptcy, foreclosures, excessive debt, or anything that could affect the lease applicant’s ability to pay on time or even pay at all.
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How to Run a Background and Credit Check
We mentioned the Fair Credit Reporting Act (FCRA) earlier and pointed out how some of the background check sites out there cannot be used. When searching online, make sure to Google search “FCRA compliant background check” and also read fine print on the sites. We list a few FCRA approved sites here in this article. Sites that are not approved will typically have a disclaimer like this:
“DISCLAIMER: You may not use our service or the information it provides to make decisions about consumer credit, employment, insurance, tenant screening, or any other purpose that would require FCRA compliance. The information available on our website may not be 100% accurate, complete, or up to date, so do not use it as a substitute for your own due diligence, especially if you have concerns about a person’s criminal history.”
Not to throw any websites under the bus, but sites such as Instant CheckMate, BeenVerified, Intelius, PeopleSpy, etc. are not FCRA compliant background checks. They are great websites for informal people searches for say, getting dirt on your new squeeze, checking up on your friends, etc. but the potential inaccuracy of the information is what causes these to fail the FCRA litmus test. Use these personally at your own risk and realize that everything you pull may not be 100% accurate. Don’t use these to screen tenants. Again, that’s illegal!
Here’s an infographic from the American Apartment Owners Association (AAOA) that shows you the details on the process:
Background and Credit Check Websites
Before getting started, make sure the prospective tenant pays a rental application fee! You don’t want to be paying to screen all of these tenants. That’s a quick way to lose your cash flow. Coming up, we’ll go over a few sites that you can use to screen your tenants. Some of the sites we mention require the potential renter to sign up for their own credit check, preventing you from having to collect payment directly.
Helpful Hint: If a prospective tenant asks you if you do background checks, you probably want to write them off as a potential tenant. A good tenant isn’t going to be concerned with you checking out their history! This isn’t a hard and fast rule, but you want to listen to little hints like this.
TransUnion SmartMove – What a better place to get a credit check than straight from the source? TransUnion, a credit bureau, gives you a full credit report along with a national criminal and eviction report. If you’re looking to kill two birds with one stone and have an all-in-one solution, this may be your best option. Buildium, a property management software application, integrates well with SmartMove. A quick tenant screening with a brief credit screening and background checks is $25. If you want to add a full credit report and eviction search, the price is $35. We recommend to order the full report since you don’t want to leave anything to chance! The fee is passed to the applicant anyway.
Experian Connect – This is another “straight from the source” credit check website. They put a different spin on the credit check by having the guest (tenant) request their own credit report and then give you (landlord) access to it. This can be beneficial since the tenant will pay for the credit check, they’ll be fully aware of their own score, and it prevents fraud. Since you go to Experian’s website to view it, you know that it is a legitimate credit report. It’s free for landlords to join and only $14.95 for the renter to run a credit check on themselves. Also, this is only a credit check site, so it’s not an all in one solution like SmartMove.
RentPrep – This site prides itself on having “non-robot” FCRA certified screening staff available. Real humans perform thorough background checks from multiple sources. Claiming to do more than tenant screening, they also have landlord forms, articles, and other resources. This site also operates as a “one-stop shop” with SSN verification, eviction search, bankruptcies, criminal background checks, and a credit check that doesn’t require tenant involvement. RentPrep claims that interested applicants will sometimes forget to create an account on other sites like SmartMove or Experian. This is something to consider, but you will want to look at a number of factors. RentPrep has a Basic, Pro, and Platinum report for $18.95, $22.95, and $34.95 respectively. The Platinum package includes a phone package where RentPrep will verify current/previous residences and employment over the phone. This could be extremely useful for DIY landlords who don’t have time to call and verify employment for every prospective tenant.
American Apartment Owners Association – The AAOA allows you to do tenant screening in the form of credit, eviction, and criminal background checks. There are two a la carte options for background and credit checks. Each package runs at $19.95: the background check gives you a state specific eviction, criminal, and address check and the credit check gives you a credit report and score. For more advanced options, there are red, white, blue, and gold packages for more comprehensive reports.
Background and credit check sites are relevant and important for real estate investors who are their own landlords. When you bring someone into your house and trust your hard earned asset to them, you don’t want to just “wing it” and hope for the best. You will want to perform some tenant screening in order to ensure you have a quality renter and reputable person in your house.
So, get on out there and start screening tenants! Stop back by and let us know what site you chose in the comments below.