Private credit reporting agencies collect and sell credit files and other information about consumers. Many landlords find it essential to check a prospective tenant’s credit history with at least one credit reporting agency to see how responsible the person is managing money.
A credit report contains a gold mine of information for a prospective landlord. You can find out, for example, if a particular person has ever filed for bankruptcy or has been:
Information in credit reports covers the past seven to ten years.
Depending on the type of report you order (the offerings vary according to the agency you deal with), you may also get an applicant’s credit, or “FICO” score. This number, ranging from 300 to 850, purports to indicate the risk that an individual will default on payments. High credit scores indicate less risk. Generally, any score above 650 is considered a medium risk or less. Don’t put too much value in a high credit score, since this number does not reflect the many other good-tenant characteristics (such as ability to get along with neighbors and take good care of your property) that are very important. For more on the topic, see the Nolo article “Credit Scores.”
To run a credit check, you’ll need a prospective tenant’s name, address, and Social Security number or ITIN (Individual Taxpayer Identification Number), which will typically be on the rental application you ask prospects to complete. The application is also the place for applicants to authorize you to run a credit report. Be sure to tell prospective tenants the amount of any credit fee you are charging (discussed below). Nolo’s Residential Rental Application and Consent to Background Check forms both include sections where the tenant gives consent your to check their credit report.
Three credit bureaus have cornered the market on credit reports:
You cannot order a credit report directly from the big three bureaus. Instead, you’ll need to work through a credit reporting agency or tenant screening service (type “tenant screening” into your browser’s search box). Look for a company that operates in your area, has been in business for a while, and provides you with a sample report that’s clear and informative. You can also find tenant-screening companies online in the Yellow Pages under “Credit Reporting Agencies.” Your state or local apartment association may also offer credit reporting services. With credit reporting agencies, you can often obtain a credit report the same day it’s requested. Fees depend on how many reports you order each month.
It’s legal in most states to charge prospective tenants a fee for the cost of the credit report itself and your time and trouble. Any credit check fee should be reasonably related to the cost of the credit check —$30 to $50 is common. California sets a maximum screening fee and requires landlords to provide an itemized receipt when accepting a credit check fee. See the Nolo article “California Law on Application Screening Fees and Credit Reports,” for details.
Be sure prospective tenants know the amount and purpose of a credit check fee and understand that this fee is not a holding deposit and does not guarantee the rental unit.
Also, if you expect a large number of applicants, you’d be wise not to accept fees from everyone. Instead, read over the applications first and do a credit check only on those who are genuine contenders (for example, exclude and reject those whose income doesn’t reach your minimum rent-to-income ratio). That way, you won’t waste your time (and prospective tenants’ money) collecting fees from unqualified applicants.
Keep in mind that it is illegal to charge a credit check fee if you do not use it for the stated purpose and pocket it instead. Return any credit check fees you don’t use for that purpose.
Tenants who are applying for more than one rental will be understandably dismayed at the prospect of paying each landlord to pull the same credit report. They may obtain their own report, make copies, and ask you to accept their copy. Federal law does not require landlords to accept an applicant’s copy—that is, you may require applicants to pay a credit check fee for you to run a new report. Wisconsin is an exception: State law in Wisconsin forbids landlords from charging for a credit report if, before the landlord asks for a report, the applicant offers one from a consumer reporting agency and the report is less than 30 days old. (Wis. Adm. Code ATCP 134.05(4)(b).)
If you do not rent to someone because of negative information in a credit report, or you charge someone a higher rent because of such information, you must give the prospective tenant the name and address of the agency that reported the negative information. This is a requirement of the federal Fair Credit Reporting Act. (15 U.S. Code §§ 1681 and following.) You must also tell the person that he has a right to obtain a copy of the file from the agency that reported the negative information, by requesting it within 60 days of being told that your rejection was based on the individual’s credit report. For details, see the article “Using Consumer Reports: What Landlords Need to Know” on the Federal Trade Commission (FTC) website. Also, Nolo’sLandlord’s Applicant Rejection Kit includes a rejection letter and a form you can use if you do not rent to someone because of negative information in their credit report.
You are legally free to check tenant credit reports and use the information when selecting tenants, as long as you don’t illegally discriminate in doing so—for example, by only requesting credit reports from certain tenants or by arbitrarily setting tougher standards (such as a stellar credit record) for renting to a tenant who is a member of a racial or ethnic minority or other protected class. See the Nolo article “Fighting Rental Housing Discrimination FAQ” for details.
Also, federal law requires you to keep only needed information from a tenant’s credit report and to discard the rest. For details, see Handling Tenant Credit Reports: The "Disposal Rule."
For more information on credit reports, including details you’ll find there, see the Credit Reports & Credit Scores section of Nolo’s site.