The Complete Guide to DIY Credit Checks for Tenant Screening

2016-05-02

The Complete Guide to DIY Credit Checks for Tenant Screening

Step one: screen every tenant. No exceptions!

Some housing-related paperwork.Tenant screening is a topic we are extremely keen on, because it’s one of those factors that makes a big difference in your profitability as a property manager or real estate investor. It’s also one of those tasks that’s just annoying enough and obscure enough that it’s remarkably easy to do wrong. So after a half-dozen requests from DIY landlords asking how they can get credit information legally, accurately, and without breaking the bank, we decided we’d tell you.

Obtaining a Consumer Credit Report
The Fair Credit Report Act (FCRA) created a variety of regulations surrounding the act of accessing an individual’s credit report. The basic process that every entity accessing a private credit report has to go through involves several steps:

  1. Receive the completed rental application form from the applicant. This will include the information you need to identify the applicant to the background-checking agencies, including their full name, address, SSN/TIN, and (depending on the agency) email address.
  2. Require the applicant to fill out a Credit Report Authorization form. This shows the credit agencies that you have permission to access the individual’s credit report. (If the applicant refuses to fill out the Authorization, there’s no penalty for denying their application on the spot.) The Authorization has to be kept on file for 3 years thereafter.
  3. Go to an FCRA-approved background check agency and request a Consumer Report.
  4. If you decline the applicant due to the results of their Consumer Report, you must give the applicant the name and address of the background-checking agency you used, and inform them that they have 60 days to request a free copy of the information you received. There’s a good way to do this built into Nolo.com’s Applicant Rejection Kit.

FCRA-Approved vs. Unapproved
The first big snag many DIY landlords run into is the existence of thousands of background-checking agencies that are not FCRA-approved, and are therefore legally useless for tenant screening. If you have an agency you think you’d like to use (there’s a list below if you don’t), start by Googling the name of the agency along with the phrase “FCRA compliant.” Most (but not all) non-approved sites will have a disclaimer that says something to the effect of “You may not use our service or the information it provides for purposes of consumer credit, employment, insurance, tenant screening, or any other purpose requiring FCRA compliance.” In the end, however, it’s up to you to do your due diligence and identify an FCRA-approved background-checking agency for yourself.

Who Pays?
One of the major divisions between background-checking agencies is between those that charge the landlord and those that charge the applicant. Obviously, either way, you’re going to get the applicant to pay — it’s just a question of whether you’d rather collect their money yourself and then pay for the application, or whether you’d rather use a service that bills them directly.

Some Top-Notch Background Check Services
These are all background-checking services that are FCRA-compliant and are large enough to offer a consistent level of accuracy and service.

  • Experian Connect gives you only one bureau’s credit report (Experian’s, obviously), but it allows you to (once you’ve created an account) simply turn in an applicant’s name and email address and they will contact the applicant, get their data and permission, and charge them the $15 fee — all without requiring a visit to the rental site.
  • TransUnion SmartMove charges a bit more: $25 for the ‘low-level’ version (which we don’t recommend as it doesn’t come with a full credit report), or $35 for the ‘full’ version. But not only does it come everything the Experian report does, it also comes with a national criminal background check and an eviction report as well. And you can still request the applicant pay.
  • RentPrep will cost you an extraordinary $45 — too much for many landlords — and they don’t offer you a full credit report (it’s only a summary). That said, what they do offer is extraordinary, including literally everything except a full credit report. They’ll not only give you basically the most complete background check available, but they’ll even have a live human being call and verify the tenant’s references for you. And they do it all without the tenant being involved in the process; all you have to do is send them a copy of the completed rental application. If it weren’t for the credit report thing, we’d encourage everyone who could consistently get applicants to pay $45 to use RentPrep as their standard.
  • Mr. Landlord

And that’s that — it’s fairly simple once you know what you’re doing. It’s getting over that initial confusion that’s the hard part. Good luck!

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