What Should You Look For in the Credit Report?
Now that you have the results of the credit check, you need to review it. Look for chronic late payments, unpaid accounts, bankruptcies, eviction history (if provided) or judgments against. Even if the prospective tenant pays their bills on time, it is important to look at how much debt they have. If a large majority of their income each month is already committed, they may have difficulty paying their rent on time.
If the Credit Check Shows Good Credit
Great! The potential tenant has good credit and seems to pay their bills on time. Don’t be lackadaisical though. Credit reports are not foolproof. Scam artists and professionals tenants know how to falsify information. Make sure you have the same move-in requirements for everyone. Don’t accept any renters without first receiving that all important security deposit.
Review a Negative Credit Report With a Prospective Tenant
If areas of a prospective tenant’s credit report alarm you, ask them about it. There are often mistakes on a credit report that the tenant may not even be aware of. In addition, good people fall on hard times and the blemish may not be a representation of their attitude toward financial responsibility. A spouse could have run up debt under their name or there could be fraudulent charges on the report that they are not even aware of.
It never hurts to confront the tenant and listen to their explanation.
Declining to Rent to Someone With Bad Credit
If the report turns back negative information about the prospective tenant and you decide not to rent to them because of their bad credit, the Fair Credit Reporting Act requires you to take certain steps.
First you must mail an "Adverse Action" letter explaining that you have declined their application because of their credit report. You must include the exact reasons for your rejection. You are also required to provide them with the name, address and phone number of the agency you used to run the credit report and inform them of their right to request a free copy of their credit report from the agency within 60 days.
Renting to Someone With Bad Credit
You are legally allowed to require an additional security deposit or that the tenant has a co-signor, as long as you again provide the applicant with the “Adverse Action” letter stating that their bad credit is the reason for these added stipulations.