After narrowing the field of applicants based upon the information in rental applications, you are now ready to do credit checks. Why is this step necessary? A credit report gives you a good indication of how responsible each prospect is when it comes to handling money. It's more difficult today, however, because so many people have had homes foreclosed or bankruptcies, job losses, and medical bills they cannot pay because they don't have health insurance.
Some landlords want to give the family a break. Others believe you should stick to your standards for qualifying tenants and that it's better to keep the unit vacant until a qualified renter comes along. If you decide to take the risk, carefully scrutinize the credit report to find out if the prospect has a long history of not paying bills or if it started with a mortgage that became unaffordable or medical expenses that tipped the scale.
If you decide to relax your standards on credit checks, do it consistently. If you forgive someone whose only black mark is an ongoing hospital debt, be sure that's the criteria you use if someone in similar circumstances applies for the vacancy. Otherwise you set yourself up for a discrimination complaint.
Credit reports will tell you if a person pays rent and bills on time, was evicted (this information may not be available in some states), is involved in a lawsuit, and whether he has a credit history. Keep in mind, however, that credit bureaus make mistakes and some reports may contain inaccuracies.
What's Involved in a Credit Check
Credit ratings are based on an individual's credit-paying history, the amount of money owed, the length of the credit history, new credit, and types of credit used. The report will give you specific information about the applicant's bank loans, credit card accounts, real estate loan payments, student loans, bankruptcies, and accounts in collection.
The data is given a numerical score ranging from 300 to 850. The higher the score, the more likely an individual is to pay bills in full and on time. Most people have a score in the 700 range. The following chart will help you interpret the score an applicant receives:
Credit Score
Delinquency Rate
800–850
1%
750–799
2%
700–749
5%
650–699
15%
600–649
31%
550–599
51%
500–549
71%
300–499
87%
