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 responsibly the applicant manages money.
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 score. The most commonly used credit score is the FICO score. It ranges from 300 to 850, and purports to indicate the risk that an individual will default on payments. High scores indicate less risk. Generally, any score above 650 is considered a medium risk or less.
Another type of credit score is VantageScore. Credit reporting agencies created this score to compete with FICO scores. VantageScores have the same range (300-850) as FICO scores.
Don't put too much value in a high credit score—it doesn't 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.
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 or consent to background check forms 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).
Three credit bureaus have cornered the market on credit reports:
As linked above, each of these credit bureaus offers tenant screening services that include credit checks. You can order the reports online and receive them immediately. Fees for the services vary, but usually are no more than $40.
Another popular option is to have a service request a credit and screening report from your tenant. Doing so avoids your having to collect a credit check fee (the service charges the applicant) and potentially sensitive information (such as a Social Security number). Most of the time, you simply register an account online with the service, and it will send the applicant instructions for how to order the report and allow you to receive it. The service notifies you when the report is complete and tells you how to access it. Many of the credit bureaus provide this option, as do other landlord-oriented websites such as Cozy and TurboTenant.
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.
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. To avoid paying multiple times, they might 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.
State laws might differ, though: For example, 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. Stat. § 704.085(1)(b) (2019).) Consider consulting a local landlord-tenant attorney to find out your state's laws regarding tenant screening and credit checks.
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.C. §§ 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. The Federal Trade Commission's website offers helpful tips on how landlords can use consumer reports.
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.
Also, a federal law known as the “Disposal Rule” requires you to keep only needed information from a tenant's credit report and to discard the rest.