Kimberly Smith writes on corporate landlord issuesThis is an interesting topic as more people have bad credit because they’ve gone through bankruptcy or foreclosure on a previous property.

In today’s environment, credit reports must be used to see the bigger picture about a prospective tenant. In looking at a renter who has poor credit, you need to ask more questions to understand if the potential tenant is likely to be a repetitive credit offender or if it’s just a one-time occurrence.

In 2013, 32% of respondents to our survey on say “yes,” they always run credit checks on potential tenants – an all-time high number.
Likewise, 37% say ”no,” they never run reports or they don’t know how, which is consistent with previous years.

Starting in 2011, we divided the credit check and background check question into two separate questions. There is a significant difference between conducting a credit check and a background check. With that said, we found very little variance between the two topics, which surprised us. We expected credit checks to be higher than background checks; yet for all statistical variances, they appear to be the same.

We have been watching an emerging trend in which HOAs (or the rules of the building/community in which a property is located) require these types of checks, and we looked for that trend in the 2012 and 2013 surveys. We thought this trend would increase the number of respondents saying they always run credit checks and/or background checks. However, beyond slight increases, we have not seen a significant jump in the “yes, always” numbers.

Also remember, if you’re a landlord, you may use consumer reports to evaluate rental applications – as long as you follow the provisions of the Fair Credit Reporting Act and the guidelines from the Federal Trade Commission. The Fair Credit Reporting Act is designed to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies  is as accurate as possible. The Fair Credit Reporting Act requires landlords who deny a lease based on information in the applicant’s consumer report to provide the applicant with an “adverse action notice.”

Landlords often use consumer reports to help them evaluate rental applications. These reports include:

  • A credit report from a credit bureau, such as Trans Union, Experian, and Equifax or an affiliate company;
  • A report from a tenant-screening service that describes the applicant’s rental history based on reports from previous landlords or housing court records;
  • A report from a tenant-screening service that describes the applicant’s rental history, and also includes a credit report the service got from a credit bureau;
  • A report from a tenant-screening service that is limited to a credit report the service got from a credit bureau; and
  • A report from a reference-checking service that contacts previous landlords or other parties listed on the rental application on behalf of the rental property owner.

Landlords often ask applicants to give personal, employment and previous landlord references on their rental applications. Whether verifying such references is covered by the Fair Credit Reporting Act depends on who does the verification. The Federal Trade Commission rules say a reference verified by the landlord’s employee is not covered by the Act; a reference verified by an agency hired by the landlord to do the verification is covered.

For more information on this issue  visit the Federal Trade Commission site here.

Here are our survey results.

Do you run credit checks on potential tenants?*
Answer Options

2013 Responses

2012 Responses

2011 Responses

2010* Responses

Yes, Always

32%

28%

26%

26%

Sometimes

31%

36%

36%

36%

No – Never

32%

30%

30%

32%

No – Don’t Know How

5%

6%

8%

6%

Do you run background checks on potential tenants?
Answer Options

2013 Responses

2012 Responses

2011 Responses

Yes Always

29%

22%

23%

Sometimes

34%

38%

33%

No – Never

31%

31%

34%

No – Don’t Know How

5%

9%

9%

Visit Kimberly’s website here.

 

 

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  • Kimberly Smith

    Kimberly Smith is the founder and CEO of AvenueWest Corporate Housing, a full-service property management program that is available across the United States. Visit AvenueWest.com for more details.

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