Choosing the right tenant is the most important task you will have as a landlord. It is essential that you protect yourself and your property by screening tenants with a credit check. This is where most of the newbie landlords make their biggest mistakes. In some cases, prospective tenants will try to distract you from running a credit check on them. They will walk into the property with cash in hand. Make sure you are not falling for that trick. There are a lot of great tenants out there you just have to take the time to effectively screen all of your prospective tenants. This will help to significantly reduce problems in the future. A credit report will help you verify the prospective tenant’s ability to pay the rent on time. Quality tenants are the key to long-term profitability.
What is a Credit Report?
A credit report is a statement that has information about the credit activity and current credit situation of your applicant. A credit report will show you everything from credit cards, loans, mortgages, past-due medical bills and car payments. It is important to look at the prospective tenant’s credit score as well as the credit report because this will show you an individual detailed payment history. This will show you how responsible your prospective tenant is in managing their payments and debts and will show you how they have handled their financial obligations in the past.
A credit report will also let you know your prospective tenant’s financial monthly obligations. If the applicants monthly obligations plus rent, exceed his income, that is a red flag. On the other hand, if his monthly payments + rent are a low percentage of his income, then you will have peace of mind knowing that he/she has the ability to make payments. Another good thing to consider is that the household income of your prospective tenant must be at least 2 to 3 times the rent amount. If a tenant has a bad credit score, it is generally a red flag. We recommend a credit score of 650 or more. If your prospective tenant consistently pays his bills late, you can expect the same for your rent payments.
Credit reports usually contain the following:
- Name and any nicknames or aliases that may have been used in the past in connection with a credit account, including nicknames
- Current and former addresses
- Birth date
- Social Security number
- Phone numbers
- Employment history
- Current and historical credit accounts, including the type of account (mortgage, installment, revolving, etc.)
- The credit limit or amount
- Account balance
- Account payment history
- The date the account was opened and closed
- The name of the creditor
- Civil suits and judgments
Choosing the wrong tenant can result in thousands of dollars in losses. You want responsible renters with a solid credit history who will be able to pay rent on-time, in full, every single month. A credit score and credit report can be the ultimate indicators of whether or not a tenant will be responsible. Picking the right prospective tenant helps ensure that your tenants will pay rent on-time. At Crown Key Realty Inc & Property Management, we actively prevent most evictions by carefully placing qualified tenants. We have the experience, tools, and resources to effectively manage your property and maximize the rental value of your home.