Consider the age we live in where information is king. Nearly everything you do is monitored and recorded in some database, and used for any number of reasons. Opening a bank account, shopping for a new car, getting a traffic citation, applying for a credit card – all of it is available depending on your purpose.
As a landlord you have an excellent reason for accessing some of this valuable data when screening renters. The difficulty is figuring out which companies are going to provide you with the information you need in the best possible way. For instance, with rental properties you don’t need to know if an applicant got a speeding ticket, but you do need to know whether they were convicted of a violent crime. When preparing to do a background check feel confident that the information you receive is going to be directly applicable to your needs, and available in a convenient way.
Below are five essential steps that will guide you safely through filling your vacant rental with tenants you can trust:
How Do You Plan to Get The Credit Report?
Tenant screening reports are generally comprised of 3 major elements: credit report, eviction history and criminal background check. While eviction and criminal data is considered public record, the credit report is closely monitored and heavily regulated since it contains private financial information about consumers. Because of this you should know which company you plan to use, and what information may be required to get the report you want.
Some companies will allow you to do everything yourself without your applicant having to go online or make any phone calls. Generally, these screening companies either:
- Don’t include the credit report OR
- Require a 3rd party inspection of your office to ensure you have the right intentions for using the information, and can protect sensitive materials (such as social security numbers).
While a report that doesn’t include credit may be more easily accessible, it is heavily lacking in some of the most essential information you need, to make an informed decision; can the applicant afford the rental? Credit reports make it clear whether an applicant has good payment habits so you can feel assured they will have your rent ready each month. The three major credit bureaus – Experian®, TransUnion® and Equifax® – have strict requirements for why they allow access to consumer credit reports.
The standard method of receiving an account to access credit reports would require a setup process that takes several days to complete. Newer technology has created an opportunity for landlords, property owners, real estate agents and property managers to streamline the process without being invasive. Look for a company that offers tenant screening online such as ApplyConnect.com with no cost for account setup, and provides a direct to consumer report option. This type of site will take care of verifying the identity of all parties involved, and should deliver a complete credit report with a score in addition to all essential public record data. Ideally these companies will be free for you to use since the applicant is the one purchasing their report for you to review.
The greatest advantage of tenant screening is the reduction of liabilities when you are sifting through potential applicants. Using the same background information for all applicants to make a decision based solely on fact over what could be deemed as ‘subjective’ reasoning is one of the best ways to ensure your decision isn’t questioned. To do this you will need to notify your applicants that you plan to perform a background check involving credit history, and have them acknowledge that they are okay with it. This acknowledgment should be verifiable and remain accessible should the applicant ever complain to a credit bureau that they never gave you permission to view their private credit information.
There are a few ways you can have your applicants provide you with authorization that is accepted by the credit bureaus:
- Have them sign the application, or another disclosure, that includes language giving you permission to perform a background check. This signed application is required to be stored on file (physical or digital copies) for at least six (6) years.
- Have them complete an application online that has e-signature capabilities. Again, a copy of this authorization will need to remain accessible for at least six (6) years.
- Connect with the applicant using a “consumer initiated” screening website that requires every user prove their identity using some form of authentication tool like “out of wallet questions”. Sites that use this type of technology will generally store the authorization for you, and naturally incorporate a form of fraud reduction by verifying the identity of the applicant before allowing the report to be processed.
Review the Information for Accuracy
There are well over 300 million U.S. citizens creating billions of digital records detailing credit accounts, criminal offenses, eviction filings, bankruptcies, collection accounts and more. Upon receiving the tenant screening report you should first verify that the information you are reading is about the person who is applying.
To start you should cross reference the age of the applicant with their driver’s license or photo ID. If they have any criminal convictions that include physical descriptors, and you have personally met the applicant, be sure there is consistency. Review the previous addresses returned by the credit bureau with any they may have submitted to you on an application. If any of this information doesn’t match up, you should contact the company who created the report and ask questions to verify the accuracy.
You should also be checking that the report was completed properly. An applicant with no criminal or eviction records is a good thing, but having no credit history could indicate the bureau didn’t locate them in the system. It is possible that the applicant doesn’t have enough information reported because of age or payment habits (no credit cards or loans to report), but using scoring models such as the VantageScore 3.0 should still return some type of information even with little activity to draw from. Use this situation as a red flag to investigate further that everything was done right before jumping to conclusion. Once you determine that the report was properly performed on your applicant you can move on to reviewing it for whether they meet your rental criteria.
Assuming you will have good traffic to your vacant rental with more than one person applying, you will have the power to decide who is right for your property. The key to doing this properly (and legally) is to have a consistent set of guidelines you apply to each applicant. While you may have good intentions all it takes is one disgruntled person you denied who believes you violated their civil rights. Knowing that you are going to read the same report for all applicants and base your decision on factors such as payment history, criminal records and severity of crimes or prior evictions keeps your investment safe. Should there ever be a question of why you made your decision you will have strong evidence supporting that you acted fairly, and in the best interest of your business.
Keep All Applicants Notified
Once you have reviewed a report and made your decision about an applicant it is a good policy to let them know as soon as possible – even if it’s not the answer they are hoping for. When an applicant is denied it is still your responsibility to provide them with a disclosure of their rights since a credit report was used in the decision process. Your tenant screening company should have a form like this available for free, and there are even options to have it automatically sent to your applicant via email.
You have come so far to acquire investment properties and generate a great source of income each month. Protect your assets and financial well-being by filling your properties with trustworthy tenants who will pay their rent on time, and limit your liabilities by screening those tenants using all legally required guidelines. To try an online tenant screening tool for no cost visit www.applyconnect.com and create your free account today!