September 19, 2023 • 5 min read
According to US News, nearly six million US households are at least one month behind rent.
Picture this: You've invested considerable time and effort in attracting applicants to your property. You've conducted interviews, checked references, and performed criminal background checks in your tenant screening process. But what about their financial history?
While relying solely on gut instincts or initial impressions is tempting, a far more effective way to evaluate an applicant’s creditworthiness is by accessing their credit report. This report provides a comprehensive snapshot of their financial history, including their payment track record, outstanding debts, and any past evictions or bankruptcies. Armed with this information, you can make more informed decisions, mitigating the risk of late or missing rent payments.
But you can’t just run a credit report without authorization.
This post will cover all the basics of credit report authorization for property managers. We’ll discuss what credit reports cover, how to gain authorization from your applicants, and six key insights you can’t miss.
What is a renter's credit report? A renter's credit report is a document that provides information about a prospective tenant's credit history. Property managers can use this document to evaluate the financial reliability of potential renters. Equifax, Experian, and TransUnion collect credit data from sources like lenders and creditors.
You’ll request credit reports from your applicants to verify their financial history and assess whether or not they may be a reliable tenant. Checking credit history helps you gauge the risk associated with renting to an applicant, as a strong credit history may indicate a stronger likelihood your renter will manage their finances effectively and make rent payments on time.
The credit report typically includes the applicant’s name, address, and Social Security number. It also details the individual's credit accounts, including credit cards, loans, and outstanding balances. Payment history is a crucial aspect of the report, revealing whether the person has made timely payments or has a record of delinquencies. Public records, such as bankruptcies or tax liens, may also be included in the report.
You can also view the applicant’s history of credit inquiries, which indicates the recent times the person has applied for credit, loans, and more. Finally, you’ll have access to the applicant’s credit score, which typically ranges from 300 to 850, with higher scores indicating higher creditworthiness.
Related: Why Traditional Leasing is Broken
Remember, you must comply with all legal guidelines and applicable regulations when running or accessing credit reports. Take steps to obtain the necessary consent from your applicants, understand the best practices for handling sensitive information, and put systems in place to protect that data appropriately.
With all this in mind, let’s move into the meat of our discussion: the six things every property manager should know when accessing and using credit reports!
Before accessing a tenant’s credit report, you must obtain written consent from the applicant. The easiest way to ensure you have proper documentation and remain compliant with this requirement is to use a credit report authorization form.
Your credit report authorization form should include the following:
It is also important to specify the timeframe for which the consent is valid. Obtaining consent for 30 to 60 days is recommended, as this time range gives you enough time to complete the tenant screening process and make an informed decision about your rental property.
The Fair Credit Reporting Act (FCRA) is a federal law that governs the collection, dissemination, and use of consumer credit information. As a property manager, it's crucial to comply with the requirements outlined in the FCRA when obtaining and using credit reports for your applicants.
The FCRA helps protect consumer rights. It promotes accuracy, fairness, and privacy in credit reporting. You must familiarize yourself with the requirements and provisions of this act to avoid penalties associated with violating the FCRA.
You can find more information about the FCRA on the FTC website!
You are limited in how you can use the credit reports you run, even with the appropriate written consent. You can only use the data you receive from your credit reports for purposes directly related to tenant screening, like evaluating an applicant’s rental application and creditworthiness.
Suppose you misuse or access credit reports for purposes other than these applicant screening processes. In that case, you will violate privacy laws and regulations and may be subject to fines or other penalties. Always use credit reports responsibly and within the permissible scope outlined by these privacy laws.
Another consideration related to credit report authorization is your obligation to disclose. You must inform applicants that a credit report is required for your tenant screening process. Ensure this disclosure is clear, explicit, and documented separately from your other application materials.
Providing clear and transparent communication helps ensure your applicants are aware of the credit check requirements before they apply. Armed with this information, they can decide whether they wish to apply.
Handling credit reports and related authorization forms requires careful attention to security and applicant privacy. As a result, you must have a plan to properly dispose of old reports once you finish reviewing them in your screening process.
Proper disposal methods include shredding physical documents and securely erasing digital files. Implementing these measures is essential to safeguard applicants' privacy and mitigate the risk of unauthorized access or identity theft. Before requesting credit reports, establish secure procedures for storing, accessing, and disposing of credit reports and associated documents.
Finally, ensure you have the necessary processes to comply with fair housing laws related to your credit report screening practices. Fair housing laws prohibit discrimination based on certain protected traits and statuses when searching for best-fit renters. Some of these protected statuses include:
Ensure you are using credit reports without discrimination. Treat all applicants fairly and equally, focusing solely on their creditworthiness and qualifications as renters rather than reviewing and making rental decisions based on statuses like the ones listed above. By adhering to fair housing laws, you create a welcoming and inclusive environment for all applicants and avoid penalties for violating these laws.
Following the steps and insights in this post, you should be able to obtain the property authorization to run renters' credit reports for all your applicants, giving you the information you need to make the best decision for your renters.
However, keeping track of all this information — and everything you need to know to manage your applicants and applicant screening process— can get overwhelming.
Wouldn’t it be simpler if a single tool could help you manage and run every step of the applicant screening process?
Using our tool, you can authorize and run credit reports, collaborate and communicate with applicants, list properties on rental sites, and more. To see if Intellirent is the tool you’ve been looking for, check out our Product Tour today!
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