As a landlord, allowing a tenant to move into your property can be risky and anxiety producing. After all, you put a lot of work and money into your rental property, so you want to do everything in your power to find a renter that will respect your property and make payments on time.
Landlords require credit reports from tenants because it helps paint a picture of whether or not the tenant will be financially responsible for the lease. Tenant credit screening reports provide landlords with an unedited view as to how tenants have handled their financial obligations in the past, and, therefore,can be used to predict how a tenant will behave in the future.
Credit reports, unfortunately, can be confusing and contain an excess of information that can be overwhelming if you’re not a seasoned financial professional. If you need some assistance on how to read such a report, you’re in luck. Here, we’ve cut out the extraneous information to make the interpretation of your potential tenant’s credit screening report as simple as possible.
The Credit Overview
A credit overview is the first bit of information you should go over when screening tenants, but it is not the most in-depth part of the report. The outline consists of excellent summary of any debts and credit lines you applicant may have, and will also list their credit score.
The overview does exactly what the name entails: it provides an overview of total existing debt, plus the percentage of available credit the applicant is currently using.
The summary is similar to the overview, however, this is where you’ll find a breakdown of your applicant’s total monthly payments and total debt. Having this information will help you know for sure how much your tenant already pays on other debts each month. Therefore, this section can tell you if your tenant will have enough income to comfortably cover rent.
Also listed is the applicant’s total debt ratio, which varies widely by situation. For instance, there may be some applicants who have a large total debt, but in the case of student loans, the amount could be considered “good debt.”
In this section is a listing of your applicant’s overall payment history. This will tell you when the candidate last made a late payment, or if they have any accounts currently in collections.
This information is vital when it comes to a tenant screening, as it gives an excellent indication of the applicant’s likelihood to pay their rent on time every month.
The account history is a comprehensive display of your applicant’s account history, and provides an opportunity to view up to 25 months of payment history for each account. Take time to make note of payments that have been consistently made on time, as this can show how the applicant is accountable for their financial obligations.
Additionally, a list of factors that could have lowered the credit score of your applicant will be listed. Things like this, of course, are left to your discretion as to whether you think the applicant could have just hit a rough-patch in their life that affected their credit, or they are financially irresponsible.
Does a Tenant Credit Screening Report Include a Background Check?
Although commonly used together, a background check is a separate tool and will need to be requested and processed in addition to a tenant credit screening report, if you choose to use it. A credit screening report will give you a good idea of your potential tenant’s financial history and ability to make rent payments, but it provides very minimal information about the type of tenant you’re considering. That’s where background checks come in.
A background check for potential tenants will screen for eviction history, previous landlord references, and criminal history. This information will provide you with a deeper insight into how your potential renter will treat your property, so landlords are encouraged to run both types of screenings before allowing a tenant to sign a lease.
Still need more information?
We know there’s a lot involved with becoming a landlord, and protecting your investment is, first and foremost, a priority. Sherman Bridge is committed to providing investors and landlords with relevant, accurate information and advice to inform your major decisions. Taking in new tenants is a major challenge, but you don’t have to do it alone or make blind decisions. Look to Sherman Bridge for advice you can rely on.