5 Important Things Landlords Should Check on a Credit Report

5 Important Things Landlords Should Check on a Credit Report

As a landlord, the best way to avoid renting to risky tenants is by running a credit report; it’s a crucial step in the screening process that gives you a deeper understanding of a prospective tenant’s financial behavior and responsibility.

This article will cover the most important details of a credit report and the red flags landlords should look for.

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1. Credit Score

A credit score is a useful metric for landlords to assess a prospective tenant’s financial behavior. While different credit bureaus have multiple ways of scoring credit histories, the general scale to follow is:

  • 800 + = Excellent
  • 740-799 = Very Good
  • 670-739 = Good
  • 580- 669 = Fair
  • 579 or Lower = Poor

According to 2021 reports, the average credit score of Americans is 688 for the Vantage model and 711 for the FICO model, the two most popular methods for calculating credit scores. If the report comes back with a poor credit score, there are rules laid out by the Fair Credit Reporting Act that every landlord needs to follow, including:

  • Mail an “Adverse Action” letter explaining that you have declined the tenant’s application because of their credit report.
  • Include the exact reasons for the rejection.
  • Provide the name, address, and phone number of the agency you used to run the report.
  • Inform them of their right to request a free copy of their credit report from the agency within 60 days.

You can rent to someone with bad credit if you’d like. However, you are legally allowed to increase the security deposit or require a co-signer.

2. Late Payments

A recent report from CitiGroup indicates that more than half of Americans have paid a bill late. While it’s reasonable to recognize it as an easy mistake, if their credit report shows a consistent pattern of late payments, this could suggest that the tenant will struggle to pay their rent on time.

Late payments on credit cards, utility bills, car installments, or loans can significantly impact a tenant’s ability to be approved for a rental property. With 84% of landlords citing payment problems as their top concern, according to TransUnion, running a credit report on your applicants will reveal the financial responsibility you can expect from renters.

Frequent late payments can also impact your financial situation as a landlord. TransUnion reports the average cost of eviction is $3,500 and can reach up to $10,000. The cost breakdown of an eviction includes landlord expenses for lost rent, court costs, legal fees, and property turnover costs including:

  • Mortgage payments
  • HOE dues
  • Advertising costs
  • Property management fees
  • Maintenance and cleaning services

3. Credit History

Credit history shows an applicant’s financial activity and their ability to manage money over time. A typical credit report will cover 10 years. The information in an applicant’s record includes:

  • Bank accounts
  • Credit accounts
  • Loans
  • Date opened
  • Payment history
  • Credit balance
  • Credit limit
  • Amount owing

Looking at an applicant’s credit history can also give you insight into their debt load. While many Americans have debt, according to USA Today, the average U.S. household owes:

  • Credit Cards: $16.8K
  • Auto Loans: $29.5K
  • Student Loans: $50.6K
  • Mortgages: $182.4K

With this in mind, it’s helpful to know what kind of debt a tenant is carrying to see if they can afford to pay the rent, especially if you plan to increase rent prices. For instance, ongoing credit card debt may be considered riskier than student loans.

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4. Credit Usage

Credit usage, or credit utilization, is the ratio of an applicant’s total credit to total debt. As a landlord, credit usage gives you an understanding of how reliant a potential tenant is on non-cash funds. The ideal tenant keeps their available credit high and their debts low. Running up high balances on credit cards will raise credit usage and lower the overall credit score. Generally, lenders want to see a ratio lower than 30%.

5. Delinquent Accounts

Applicants with delinquent accounts have not made a minimum payment for 30 days or more. This information goes beyond late payments and lets you know if a tenant has bills or accounts in collections, if they filed for bankruptcy, and how much outstanding debt they are carrying.

Accounts included (both open and closed) in collections records are:

  • Bank accounts
  • Credit card accounts
  • Loans (personal, student, car)
  • The loan amount or credit card limit
  • If a loan has any co-signers
  • Fines and fees imposed by courts, law enforcement, or government agencies

Collections and bankruptcy can happen, but it’s essential to ask the right questions when you see it on a tenant’s credit report. You may want to consider an applicant who has a discharged bankruptcy, provided all other aspects of the credit check are acceptable. However, someone who has a pending bankruptcy is considered high-risk, as they could be relieved of all financial obligations, including any rental payments still due.


What should I check in a tenant credit report?

Depending on the agency, a credit check will tell a landlord the following information:

  • Personal Information: name, address, social insurance number, employer, landlord
  • Credit History: bank accounts, credit card accounts, and loans
  • Public Records: evictions reported, bankruptcies, tax liens, or civil judgments against the prospective tenant
  • Inquiries: names of those who have requested a credit report on them for the last year
How do I request a tenant credit report?

Tenants must sign a document that agrees to providing a credit report to a landlord in accordance with the Fair Credit Reporting Act. The information required to run a credit report includes:

  • Tenant’s full name
  • Addresses in the last two years
  • Social insurance number
  • Date of birth
  • Current employer
  • Current landlord

A tenant screening tool, like the one from Baselane, can expedite the process by delivering credit report results in minutes.

What are some credit report red flags?

Red flags to spot on a credit report are:

  • Outstanding debt
  • Poor payment history
  • Low credit score
  • High credit usage
  • Previous evictions
  • Collections and bankruptcies
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Financial Technology, Real Estate Investing, and Property Management, Accounting and Tax, Finance
Saad started his career as a Certified Public Accountant (CPA) working for a top-tier accounting firm. He was responsible for helping audit alternative investment funds. He later worked at a hedge fund where he was responsible for preparing financial statements and implementing new technology. He also ran a successful private tax practice for five years.

After completing his MBA at Duke, Saad joined The Boston Consulting Group to do management consulting. At BCG his experience spanned several industries and growth projects across Pharma, Retail, and Technology companies. His passion for democratizing finances led him to Plaid, a fintech, where he worked with large Banks and Financial Institutions to make finances and money easier for all.
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5 Important Things Landlords Should Check on a Credit Report
5 Important Things Landlords Should Check on a Credit Report