The best way to avoid renting to risky tenants is by running a credit report. This tells you how they’ve handled their finances, which can serve as a great indication of how they’ll handle rent payments.
This article will cover how to run a credit check on a tenant, the most important details of a credit report, and the red flags to watch out for.
Key takeaways:
- A credit report helps assess a tenant’s financial reliability.
- Focus on key details like credit score, payment history, and debt-to-income ratio.
- Red flags include high credit utilization, frequent late payments, or bankruptcies.
- Mitigate risks by asking for co-signers, increasing deposits, or rejecting applications that don’t meet criteria.
- Use tenant screening tools like Baselane for comprehensive all-in-one credit and background checks, rental applications, eviction history, income and employment verification, and advanced ID checks.
What is a credit check for renting?
A credit check for renting is a review of a prospective tenant’s credit history. This process evaluates their ability to pay rent on time and helps determine overall creditworthiness. A tenant credit check generally includes:
- Personal information: Name, address, social security number, and employer details.
- Credit history: A record of credit card accounts, loans, and payment history.
- Public records: Information about bankruptcies, tax liens, or civil judgments.
- Inquiries: A list of businesses or organizations that have requested the tenant’s credit information within the past year.
By reviewing this information, you can get a clear picture of the applicant’s financial habits and potential risks.
What credit report do landlords use?
A credit report for landlords can come from a credit bureau (Equifax, TransUnion, and Experian) or a tenant screening service. Depending on the credit check service, the report may include a summary or a complete credit history.
Baselane’s online tenant credit report provides full credit details, including a credit score, payment history, outstanding debts, credit inquiries, and public records. In addition to the credit report, Baselane’s free tenant screening for landlords offers:
- Income and employment verification
- Criminal background check
- Eviction history
- ID verification
- Rental history
This all-in-one report delivers the most comprehensive tenant insights in minutes to help you make confident leasing decisions with just a few clicks.
Comprehensive reports you can trust, delivered in minutes.
What do landlords look for in a credit check?
When reviewing a tenant’s credit report, landlords generally look for responsible credit usage, manageable debt, and on-time payments. Here are the 30 key details in credit reports to give you these insights:
Credit profile
A credit profile is the first place to look when evaluating a potential tenant’s financial responsibility. It provides a snapshot of their overall creditworthiness and financial habits. Here are the core items you should check:
1. Credit score
A credit score is a quick way to assess a tenant’s financial behavior. It reflects their history of managing credit and paying debts. A high score indicates strong financial responsibility, while a low score could signal trouble with paying bills and managing debt.
Here is the general scale to interpret credit scores:
- 800+ = Excellent: Indicates strong financial responsibility and minimal risk.
- 740-799 = Very Good: Reflects reliable financial habits.
- 670-739 = Good: Shows moderate financial stability.
- 580-669 = Fair: Suggests potential financial strain.
- 579 or Lower = Poor: Indicates significant financial risk.
According to recent reports, the average credit score in the U.S. is 705 (VantageScore model) and 717 (FICO model). Just remember, a good credit score doesn’t always mean financial stability. A tenant with a good credit score but multiple accounts in collections may still pose a risk.
2. Payment history
The payment history section reveals whether the tenant has consistently paid bills on time. Frequent late payments are a red flag, suggesting a higher risk of missed rent payments. Landlords should prioritize tenants with a strong track record of timely payments.
3. Outstanding debt
Outstanding debt shows the total amount a tenant owes across all accounts, including credit card balances, student loans, auto loans, personal loans, and mortgages. A high debt load, especially relative to their income, may limit their ability to pay rent regularly.
For example, if a tenant has $50,000 in student loans and $15,000 in credit card debt while earning $60,000 annually, their debt load might indicate financial strain, particularly if their monthly obligations exceed 40% of their income.
4. Debt-to-income ratio
The debt-to-income (DTI) ratio compares a tenant’s total debt obligations to their monthly income. Ideally, rent shouldn’t exceed 30% of their income. A higher DTI ratio signals financial strain, increasing the risk of late or missed rent payments.
5. Open credit accounts
Open accounts, such as credit cards and loans, show how much credit a tenant currently uses. Having a large number of active accounts may indicate financial instability or a tendency to rely too heavily on credit.
6. Closed credit accounts
Closed accounts indicate the tenant’s history of managing credit. It’s important to review how well they’ve managed these accounts in the past, especially if any were closed due to non-payment or other issues.
7. Credit utilization ratio
The credit utilization ratio measures how much available credit the tenant is using. This tells you how reliant they are on non-cash funds. The ideal tenant keeps their available credit high and their debts low. Generally, you want to see a ratio lower than 30%. Anything higher can indicate that the tenant is over-leveraged and may struggle to manage rent payments.
8. Credit mix
A diverse credit mix (e.g., credit cards, installment loans, mortgages) reflects experience managing different types of credit. A balanced mix often indicates better financial management skills.
9. Hard inquiries
Hard inquiries are when lenders check credit during loan applications. A high number of hard inquiries in a short period can indicate that the tenant is struggling to obtain credit, which might be a warning sign of financial instability.
10. Soft inquiries
Unlike hard inquiries, soft inquiries are checks made for background or tenant screening purposes. These checks don’t impact the tenant’s credit score and can provide additional insight into their rental history.
Debt load
This section outlines the various types of debts a tenant may have, each of which impacts their financial stability. Here’s what you need to check:
11. Student loans
Student loans are common, but having a lot of educational debt can make it hard for a tenant to pay rent. Check if the tenant is making consistent payments and how much debt remains unpaid. A tenant with $50,000 in student loans who pays on time shows responsibility, while missed payments or large balances may indicate financial trouble.
12. Mortgage debt
If the tenant owns property, their mortgage debt will be visible on the credit report. Assess their mortgage payment history to understand their ability to manage large debts. A history of missed mortgage payments or foreclosure is a red flag.
13. Auto loans
Auto loans indicate whether a tenant is consistently meeting their car payment obligations. Missed payments or a high remaining balance may show financial difficulty, especially if the car loan is a significant portion of their monthly debt load.
14. Personal loans
Personal loans often come with higher interest rates and shorter repayment terms. Review their payment history to identify any missed or late payments. A tenant managing a personal loan responsibly, however, may demonstrate strong financial planning.
15. Credit card debt
Credit card debt is a common financial obligation. The average credit card debt in the U.S. is $7,236 as of the third quarter of 2024. When reviewing the report, look for high credit card balances or high usage (above 30%) as indicators of financial stress. Ideally, the tenant will have low balances and a history of timely payments.
16. Payday loans
Payday loans are short-term, high-interest loans. A typical two-week payday loan with a $15 per $100 fee equates to an interest rate of almost 400%. By comparison, interest rates on credit cards can range from about 12%t to about 30%.
If a tenant has used payday loans, it could indicate they are living paycheck to paycheck and may not have the financial resources to consistently pay rent.
Delinquent accounts
Delinquent accounts include any unpaid debts that have exceeded their due dates, which can signal significant risks as a potential renter. Here’s what to look for:
17. Late payments
Nearly 40% of Americans have paid a bill late in the last 12 months. While it’s reasonable to recognize missing a payment here and there as an easy mistake, frequent late payments on credit cards, utilities, or loans suggest a pattern of financial mismanagement.
With 84% of landlords citing payment problems as their top concern, running a credit check can save you from the hassle of collecting unpaid rent. Credit checks will save you money, too, considering the average cost of an eviction is $3,500. This can reach up to $10,000 when you factor in lost rent, court costs, legal fees, and property turnover costs (mortgage payments, maintenance costs, and other fees).
18. Accounts in collections
Accounts in collections reflect a tenant’s failure to pay debts, leading to collections agencies getting involved. 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 on a credit report are a strong indicator of financial distress and should be taken seriously during tenant screening.
19. Defaults
Defaults occur when a tenant fails to meet their loan obligations, leading to penalties or negative marks on their credit report. For example, a tenant who defaulted on a $10,000 personal loan may struggle to manage future financial responsibilities, such as rent payments. A history of defaults indicates that the tenant may struggle to pay rent on time.
20. Charge-offs
A charge-off happens when a creditor writes off a debt as uncollectible. A tenant who has a history of failed debt repayment could mean that you’ll have trouble collecting overdue or unpaid rent.
21. Overdue accounts
Overdue accounts are those that have missed at least one payment and are still open. These accounts suggest that the tenant may be struggling financially and unable to meet basic obligations like rent.
Public records
Public records related to legal disputes or financial issues can significantly impact a tenant’s creditworthiness. These records provide insight into whether the tenant has had legal or financial challenges in the past. Here’s what to look for:
22. Civil judgments
Civil judgments are court decisions where the tenant owes money, typically from a lawsuit. For example, if a tenant was sued for unpaid rent by a previous landlord and lost the case, this would be documented as a civil judgment and signify financial instability.
23. Tax liens
Tax liens are legal claims placed on a tenant’s property when they owe back taxes. These liens can significantly impact the tenant’s credit score and indicate serious financial issues. Tenants with unresolved tax liens may be struggling to manage their finances.
24. Bankruptcies
A bankruptcy on a tenant’s record suggests they’ve been unable to meet financial obligations in the past. Recent bankruptcies are particularly concerning, but discharged bankruptcies may not necessarily disqualify a tenant if they’ve shown financial stability since.
25. Foreclosures
Foreclosures happen when a tenant loses property because they couldn’t pay the mortgage. This is usually a serious warning sign of financial instability. The inability to maintain mortgage payments suggests potential difficulties in meeting rental obligations, making the tenant a risky prospect.
Potential risk indicators
Finally, potential risk indicators highlight signs that a tenant might be financially unstable or attempting to cover up financial issues. Pay close attention to these red flags:
26. High number of credit inquiries
A high number of credit inquiries indicates the tenant has applied for multiple credit cards or loans in the past two years. This is usually a sign of relying heavily on credit, which may suggest financial instability. Multiple inquiries could also mean the tenant is facing repeated rejections from lenders, further raising concerns.
27. Unsecured debt
High levels of unsecured debt, such as credit card balances, are a warning sign that a tenant may be over-leveraged. Tenants relying heavily on unsecured credit can face higher interest rates and may struggle to meet basic financial obligations like rent.
28. Unstable employment
Unstable employment is a significant risk indicator. Frequent job changes or employment gaps suggest that the tenant might not have consistent income, making it more difficult for them to pay rent regularly.
29. Fraud alerts
If a fraud alert appears on a tenant’s credit report, it indicates that there may be concerns about identity theft or questionable activity. It’s essential to verify a tenant’s identity and ensure they aren’t at risk of further financial complications.
30. Payment gaps
Credit reports typically show 7 to 10 years of an applicant’s credit history. Look for any gaps in payments to loans, credit cards, and other financial obligations. Also, check how many accounts are overdue by 30, 60, or 90 days. If they’re not paying bills on time, they’re less likely to consistently pay rent each month.
What is a good credit report?
A good credit report demonstrates financial responsibility and reliability. Key indicators include:
- A minimum credit score of 650 (over 700 is ideal).
- No late payments on credit cards, loans, or other accounts in the past six to 12 months.
- Using less than 30% of available credit.
- Limited outstanding debt relative to income, such as small balances on credit cards or manageable student loans.
- No recent bankruptcies, foreclosures, liens, or judgments.
For example, a tenant with a credit score of 780, a 20% credit utilization ratio, and no history of late payments would be considered a low-risk applicant.
What is a bad credit report?
A bad credit report raises concerns about the tenant’s ability to manage their finances and pay rent consistently. Warning signs include:
- Credit scores below 580 can indicate poor financial habits or struggles with debt.
- A history of missed payments on loans, credit cards, or utilities.
- Credit usage above 50% suggests financial overextension.
- Large balances on multiple credit accounts relative to income.
- Negative records in the last two years, such as bankruptcies, judgments, or accounts in collections.
For example, a tenant with a credit score of 550, a 70% credit utilization ratio, and multiple accounts in collections would be considered a high-risk applicant.
Check out our step-by-step guide on how to read a credit report.
How to handle tenant screening credit report issues
If a tenant’s credit report raises concerns, you have several options for handling the situation:
- Request a co-signer: If the applicant has poor credit but is otherwise a good fit, consider asking for a co-signer. This person would be responsible for the rent if the tenant fails to pay.
- Increase the security deposit: For tenants with questionable credit, you can require a larger security deposit to mitigate the risk. Check how security deposits work in your state. Some local laws limit deposit amounts (e.g., Colorado deposits can be up to two months’ rent).
- Reject the application: If the credit report shows major red flags, such as multiple bankruptcies, significant debt, or a low credit score, you may decide not to proceed with the application.
Always follow Fair Credit Reporting Act (FCRA) rules for rejecting an applicant based on their credit score, which include:
- 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.
Some states have additional protections or requirements. In New York, landlords can’t deny an application based solely on a credit score or history. Applicants must be given the opportunity to present additional information to explain or refute the findings.
What to do after you check a tenant’s credit report
Once you’ve reviewed a tenant’s credit report, take the following steps to get a complete renter profile:
1. Compare with other reports
A credit report is just one piece of the puzzle. Review additional reports such as:
- Eviction history: Check for past evictions, which can indicate potential risk.
- Criminal background checks: Ensure the tenant has no criminal history that could raise concerns.
Is rental history important? Yes, this shows previous addresses and how long tenants lived there. Long-term tenancies are more ideal than frequent moves, which may suggest instability or difficulty in maintaining steady housing.
2. Verify income and employment
Confirm that the tenant has a stable source of income to cover rent. Request:
- Recent pay stubs and bank statements.
- Employer verification letters.
- Tax returns for self-employed applicants.
Don’t rely on self-reported income, which can easily be forged. Over 83% of landlords have received fake income and employment documents in the past 12 months. Look for tenant screening options that verify income and employment.
3. Check references
Contact previous landlords to gather additional insights into the tenant’s reliability and behavior. Ask questions such as:
- “Did the tenant pay rent on time?”
- “Did they take care of the property?”
- “Would you rent to them again?”
Ask current employers about the applicant’s job and compensation to make sure it matches the details on the rental application.
Once you find the right tenant, the next step is signing a lease and setting up a rent collection service.
Here’s a landlord checklist for new tenants to make sure don’t miss anything.
Request a free tenant credit report from Baselane
Reviewing tenant credit reports is an essential step in the screening process, but you’ll need more than a simple account summary that some services provide to really know who you’re renting to.
Baselane provides a free Equifax credit report for landlords in a user-friendly format so you can easily determine an applicant’s financial stability. Plus, you can bundle other screening reports, compare applicants, notify them of their application status, and set up leases and rent collection all in one place.
Ready to find your next great tenant? Get started for free today!
FAQs
What should I check in a tenant credit report?
Credit check details can vary depending on the agency, but here’s what to review in a tenant credit report:
- Personal information: Name, address, social insurance number, contact information, employer.
- Credit history: Bank accounts, credit card accounts, loans.
- Public records: Bankruptcies, tax liens, civil judgments.
- Inquiries: Lenders who have requested an applicant’s credit report.
An ideal tenant should have a history of timely payments, responsible credit use, and no recent bankruptcies. Here are some tips on how to attract tenants with these qualities.
How do I request a tenant credit report?
Tenants must sign a document that agrees to provide a credit report for landlords in accordance with the Fair Credit Reporting Act. The information required to run a credit report includes:
- Tenant’s full name
- Current address
- Social insurance number or ITIN (Individual Taxpayer Identification Number)
- Date of birth
A tenant screening service, like the one from Baselane, can expedite the process by delivering credit report results in minutes.
What are some credit report red flags?
Potential red flags on an online tenant credit report can include:
- Outstanding debt
- Poor payment history
- Low credit score
- High credit usage
- Previous evictions
- Collections and bankruptcies
Ask for more details before denying their application. For instance, a low credit score doesn’t necessarily mean they’ll be bad tenants. An applicant may have a low credit score from student loans or medical bills but pays bills on time and keeps a low credit card balance.
Here’s a list of questions to ask potential renters so you can get a complete picture of their financial situation.
How to run a credit check on a tenant?
The process for running a credit check on a tenant varies depending on the service. Credit checks are included in Baselane’s free tenant screening report. Once you sign up, select the type of report you need and invite the tenant to complete the screening.
Here’s how it works:
- Send the screening request: Through Baselane, invite the tenant to complete their screening. They’ll get a secure link to fill out their information.
- Tenant completes the process: The tenant enters their details, including personal and financial information, authorizes a credit or background check (or both), and pays the screening fee online.
- Verification and results: Baselane verifies the tenant’s information and sends you a detailed report within minutes.
Baselane’s credit report for landlords includes a rental application and ID verification. Easily bundle background checks, income verification, and eviction history for a more comprehensive screening.
