Chapter 6

How to Analyze Credit Reports and Background Checks

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The Complete Guide to Tenant Screening

How to Analyze Credit Reports and Background Checks

So far in the Complete Guide to Tenant Screening, we’ve discussed:

The next step is to ask your prospective tenant to authorize a credit and background check. It’s understandable that tenants want to save money by handing out their own credit report, but as a landlord, it’s important that you don’t use reports given to you by the tenant. It’s a common tenant screening scam and there’s a possibility that the tenant has altered information in the report.

Luckily, it’s easy to require your own credit report using Avail. We are a trusted partner of TransUnion so our credit and background checks are accurate, comprehensive, and encrypted.

And luckily for tenants, they don’t have to pay separate application fees. Tenants pay for their credit and background check and can share it with as many landlords as they want through their Avail account.

Request a Tenant Credit and Background Check

To get started, you and your prospective tenant will create a free account with us. When tenants fill out our rental application, they are prompted to enter their social security number, which is sent directly to TransUnion, so you never have to see it. This provides tenants peace of mind and security.

Because the tenant is initiating the reports, you don’t need to be a verified “requestor” of credit reports. In fact, we’ve gone through the long and arduous process of becoming a verified “requester” so you don’t have to.

Not only does this save you time, but using Avail to perform a credit check also helps your tenant. Our credit checks perform a soft inquiry, meaning pulling the report does not impact the tenant’s credit score. Often, tenants will be worried that a credit report will negatively impact their credit score, but you can assure them that it won’t with Avail.

Analyze a Tenant Credit Report 

Our tenant credit report provides two important pieces of information:

  1. Tenant’s credit score
  2. Detailed financial summary

First, let’s go over how to interpret a tenant’s credit score:

The number we provide on our reports comes directly from TransUnion. The credit score is a single number that summarizes the tenant’s credit history. Some factors that positively influence credit score include:

  • Making payments on time
  • Little to no derogatory marks (bankruptcies, foreclosures, etc.)
  • Total number of accounts
  • Minimal number of hard inquiries

Credit scores range from 300 to 850. While the formula for determining credit scores is kept secret, it is understood that the higher the credit score, the better. A high credit score indicates a tenant is financially responsible.

Keep in mind as you are analyzing a tenant’s credit score that there are some situations that can negatively impact a credit score, even if a tenant is financially responsible. For example, people who lost their jobs during the recession or the COVID-19 pandemic may not have made all of their payments. Even once they’ve found a new job and begin making payments on time, their credit score will still reflect the times they did not make payments. These types of exceptions are important for you to consider, and we recommend you gather as much information as you can and then make your best judgment call.

The chart below will help you determine the next steps based on a tenant’s credit score, but remember, be sure to take circumstances into account and look at other proof of financial responsibility.

How to Analyze Credit Reports by Credit Score

Frequently, landlords look at the credit score and then don’t analyze the rest of the report. This is a huge mistake, as the majority of the information is found in the financial summary, including:

  • Current open accounts
  • Financed purchases (cars, student loans, etc.)
  • Mortgage items
  • Closed accounts with outstanding balances

We also include a tenant’s account history. This shows all of the tenant’s ongoing payments, including credit cards, loans, and mortgages:

Account History on a Tenant Credit Report

Payments that were paid on time are shown in green. If a payment is yellow, then the tenant paid late. And if it’s red, then the tenant never paid.

With this information, you can easily track if a tenant is making his or her payments on time. Ideally, you want a tenant who never misses a payment and never pays late.

You can also determine if the rent price is truly affordable for your tenant. If you add up the tenant’s monthly payments and add in your rent price, you will know the tenant’s total monthly expenses. If this number exceeds the tenant’s income, then you know they cannot afford your property.

Ideally, all of a tenant’s payments (including rent, loans, credit cards, etc.) should all comfortably fall below the tenant’s income.

In summary, the account history helps you determine:

  1. If the tenant will likely pay rent on time each month
  2. If the rent price is affordable

These are both good indicators of a tenant’s likelihood of paying rent each month. But remember, even an impressive credit report does not guarantee that you will receive rent on time.

Request a Tenant Background Check 

To make things easier for you, you can request single reports through Avail (i.e., just a credit report). This is important because some cities don’t allow landlords to screen based on a tenant background check — if your local laws don’t allow you to pull a background check, you don’t need to pay for one.

What’s more, our software clearly shows you when your tenant finishes each step of the application process. This clarity makes it easy for you to know where you’re at in your tenant screening process:

Analyze the Tenant Background Report 

After reviewing the credit report, the next step is analyzing the background check. Our tenant background check at Avail includes information from all 50 states. It verifies identity and a tenant’s social security number (SSN).

Our reports pull data from the following sources:

  • Felonies and misdemeanors from state and local jurisdictions
  • Sex offender public registries
  • Drug Enforcement Administration
  • FBI’s Most Wanted
  • Homeland Security
  • U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) Most Wanted
  • U.S. Marshals Service Most Wanted
  • U.S. Secret Service Most Wanted Fugitives
  • U.S. Treasury Office of Foreign Assets Control (OFAC)

This includes data from approximately 700 sources of criminal, sex offender, and eviction records. Combined, these sources have nearly 300 million criminal records.

Ultimately, the goal of scanning these databases is to provide critical information about your prospective tenant. You’ll learn if your prospective tenant has a criminal history or prior evictions.

What To Do If Your Tenant Has a Criminal History 

First, you cannot deny a tenant just because they have a criminal record. If you use criminal records to discriminate against tenants, you can be held liable and end up in court.

If you do deny a tenant with a criminal record, you need to be able to prove that you have standardized screening policies in place to refuse tenants with certain convictions that would put your property or other tenants at risk.

There are five factors you should consider before declining a prospective tenant for having a criminal history.

  • Severity
  • Recency
  • Frequency
  • Relevance
  • Legal Considerations

Some criminal sentences carry legal restrictions that the individual has to follow. For example, sex offenders are typically not allowed to come close to schools or parks. If your prospective tenant is a registered sex offender, then it’s important to consider if they are legally allowed on your property, depending on how close your property is to a school or park.

Keep in mind that requiring a tenant background check also helps you avoid liability. If a tenant commits a crime, perhaps stealing from a neighbor, then you may be held legally responsible for allowing that tenant to live there. In court, ignorance is not considered an excuse, which is why it’s best to cover your bases and require a tenant background check.

Learn more about how to evaluate a prospective tenant’s criminal record and the reasons that criminal background checks are helpful in the screening process.

Use Your Screening Information to Make a Decision

Keep in mind that the information on a credit and background check is extremely personal to the tenant. Everything you learn in a credit report or background check must be kept confidential and should only be used to judge if they will be a responsible tenant.

Now that you’ve made it through all of the tenant screening steps, the next step is accepting or declining prospective tenants. Continue reading to learn how to accept or deny tenants.