A credit report and score includes a variety of information that assists a landlord in assessment of a potential tenant. LandLordStation.com obtains a credit report and credit report scores as part of all of our tenant screening report.
A credit report and score from LandLordStation.com includes information on late or delinquent rental payments and bills, including student or car loans or whether the applicant has filed for bankruptcy. You can also see if a potential tenant has been convicted of a crime, evicted, involved in another type of lawsuit such as a personal injury claim or financial active enough to establish a credit history. Information provided when we order credit report information covers the past seven to ten years.
You will receive credit check with scores on your tenant applicants. These numbers, ranging from 300 to 850, are often used to indicate the risk that an individual will default on payments. High credit scores indicate less risk. Generally, any score above 650 is considered a medium risk or less. Don’t put too much value in a high credit score, since this number does not reflect the many other characteristics of a good tenant (such as ability to get along with neighbors and take good care of your property) that are very important traits you want in a tenant.
A credit report score is calculated on the following basis:
Payment history counts for 35% of credit report scores. This score is negatively affected if bills are paid late, an account was sent to collection or the potential tenant has declared bankruptcy. The more recent the problem, the lower the score.
Outstanding debt counts for 30% of credit report scores. If the amount owed is close to the applicant’s credit limit, that is likely to have a negative effect on the score. If a number of accounts are carried, it may lower a credit report and score because the prospective tenant appears to be overextended.
Length of credit history counts for 15% of credit report scores. The longer accounts have been open, the less a score is impacted.
New credit counts for 10% of credit report scores and may negatively affect a score. Types of credit in use can count for 10% of credit report scores. Credit report scores are better if there is a mix of types of credit containing both revolving and installment accounts.
Although this is a general guide as to how credit report scores are calculated, keep in mind that factors may cause slight differences.
LandLordStation.com will search the three credit reporting services, Equifax, TransUnion and Experian so that you get the most complete information possible on potential tenants. Credit reports can contain mistakes so, if you reject a prospective tenant because of a negative credit report and score, you must give the applicant the name and address of the agency that reported the negative information. This is a requirement of the federal Fair Credit Reporting Act (15 U.S. Code 1981 and following). You must also tell the applicant that he or she has the right to obtain a copy of the file from the agency that reported the negative information, by requesting it within 60 days of being told that your rejection was based on the individual’s credit check report. This notice is also required if you penalize a tenant based on the credit report and score you obtained. If you require a co-signer on the lease, require a deposit or a larger deposit that would not be required of another applicant or raise the rent to a higher amount, this is considered a penalty. The Federal Trade Commission has placed into effect a variety of actions that a landlord needs to perform if any of these actions are taken by the landlord.
You are legally free to check a potential tenant’s credit report and score and use the information when selecting tenants, as long as you don’t illegally discriminate in doing so. You must request credit check report scores for every applicant you are considering. You cannot selectively request credit reports or set a higher standard (like demanding a higher credit score) based on a racial or ethnic minority or any other protected class as stated in the federal Fair Housing Act.
Be sure to familiarize yourself with state law pertaining to the handling of credit report and scores. In some states, you must destroy the credit reports of any rejected tenants.When you order credit report information, you may find that, in some states, a person can freeze their credit report and you will have to obtain special information to see the results. If a prospective tenant refuses to allow you to obtain a credit report and score because it is frozen, you can usually refuse tenancy on those grounds. Be sure to get legal advice if necessary pertaining to the state law where the property is located. If you have questions regarding the subject of credit report and score usage, visit the LandLordStation.com website and click on the “Community” button at the top of the page. You will find on-going discussions with leaders in the real estate management community regarding this issue. If you don’t see information that answers your questions, you can ask the Community your question at no charge. This is a unique and invaluable service that LandLordStation.com provides our customers. For a great source of landlord information, visit LandLordStation.com.
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