How to Check Tenants' Credit Reports
By Erica Sandberg
April 23, 2013
I have a spare room in my house to rent. Do you think it's OK to ask people to bring their credit reports and their scores with them at the viewing? My house is in a very desirable neighborhood and the room is very nice with its own bathroom and entryway, so I believe I can afford to be choosy. This is my first time interviewing tenants so what should I look for on the reports and credit scores? Should I check them or have the people bring their own? — Helen
Of course you'll want your new tenant to be the sort who pays rent on time. But how can you be sure? You can't.
However, you can make some reasonable assumptions based on past financial behavior. That's where credit reports come in, since they list the details of a consumer's borrowing and repaying history. So yes, I think reading them before you make a decision on who will rent that room is smart.
As a landlord, you can pull someone else's credit reports if the tenant gives you permission (you can have them sign off on the rental application). However, you'll need to pay for it from a third-party tenant screening service or go through the three credit bureaus' tenant screening services, which also may involve a fee. So it will be easier if potential tenants provide their reports.
Once you have the reports, reading them can be tricky because they contain quite a bit of jargon and symbols. So know this:
Credit reports are divided into four sections: identification, trade lines, public record and inquiries. All but the first (as it's just the person's identifying data, like name, Social Security number, and present and former addresses) will provide some clues as to how the person has managed money and credit.
- Trade lines. The individual's credit accounts, open and closed, will be here. You'll see if he has made payments on time or late, if he has current balances and what the credit limits on those accounts are. All of that will be relevant for you. Low debt (especially compared to how much a tenant can borrow) and steady payments will be especially attractive.
- Public record. You'll want this section to be empty, as it's for problems such as judgments, foreclosures, wage attachments, bankruptcies, tax liens and delinquent child support. If any of these issues are apparent and holding you back from the offer, you may ask about them. Many people have troubles they can explain away or are in the process of correcting, so don't be too quick to judge.
- Inquiries. Here you'll find evidence of loans and credit lines that the person applied for, as well as instances of credit issuers who looked at the reports on their own accord (to pre-approve the person for a card offer, for example). The first are called hard pulls and the second are soft pulls. Focus on the hard inquiries, as a huge number of them can indicate a desperate need for money. Or it can simply mean the person was randomly shopping for credit and didn't know it could be perceived negatively. So, again, ask before jumping to conclusions.
Regarding FICO scores, if you want people to bring them, know that they do cost about $20. If you really want to see those numbers, I believe you ought to absorb that outlay.
FICO scores range from 300 to 850, with higher numbers indicating less lending risk. Most banks consider scores in the mid-700s to be excellent, so that's a decent barometer. The scores are based only on the credit information recorded on a credit report, so they can be used as a sort of cheat sheet to what you're looking for in a financially responsible tenant.
Even if you're asking for credit reports, please do check references and trust your instincts before letting someone into your home. The person with the perfect report and high scores may be the one who blasts his sound system at 2 a.m. — or even skips out on the rent.
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