A credit report provides significant insight into a persons financial past and whether or not they are fiscally responsible or have had ongoing money management problems. For landlords everywhere, this is a key question when choosing candidates to rent a home or apartment. Will the tenant be able to consistently make monthly rent payments and adequately maintain the property? While every consumer will have their financial ups and downs, a credit report can instantly convey important information used when making rental decisions.
For the purposes of determining who to rent to, the credit score and credit history are two separate but equally important characteristics of a credit report. Ideally prospective renters will have a credit score of 720 or up which is considered excellent credit. These individuals will have no missed payments on multiple lines of credit and little to no debt load. If however the landlord gets applicants which don't have perfect credit, the bottom threshold would be a credit score of 620 or above. This is considered good credit and should be taken in conjunction with a credit history to help determine if the individual will be a good renter. Credit histories will show a pattern of behavior which will either be responsible or negligent on the part of the consumer.
This is where a landlord uses their experience to quantify whether or not someone will be a responsible renter. Let's say an applicant has a credit score of 630 which may require a closer look at the credit history. There will normally be two types of financial situations which result in good to below average credit scores. One time financial events such as high medical bills and job loss or habitual financially poor judgment and decision-making such as multiple missed payments or charge-off accounts. Almost everyone will go through trying financial times resulting from layoffs, divorce or poor health. But it is incredibly easy to separate out good people who had a tough time from the dregs of society who are incompetent and negligent with their finances. Even if the applicant has an above average credit score, look closely for legal judgments and other red flags which may cause concern.
As a landlord, in order to receive a credit report on an applicant you will need to submit your request to one of the three major credit reporting agencies. Credit report inquiries have a nominal expense which can either be absorbed or passed on as an application fee. When requesting personal financial information it is incredibly important to adhere to the requirements of the Fair Credit Reporting Act. This legislation was created to protect consumers private financial information and ensure that it is accurate. A prospective landlord must receive written authorization in advance of requesting a credit report and make it clear that the credit report will be used in the decision-making process. If a potential renter is denied based on findings in a credit report, a written explanation must be provided to the consumer. This not only enables the consumer to take steps to improve their credit score but it also protects the landlord from financial and legal liability if a complaint is made that they were unfairly denied the ability to rent.