When you’re a landlord, your income properties are important assets. One way to protect those assets is to carefully choose your tenants. Background screening is a great tool to determine who meets your requirements for a good tenant. These checks allow you to verify someone’s identity and credit history before you rent to them.
Proper background checks can help you select tenants who have a history of being financially responsible. Quality tenants will take good care of your property, and will pay their rent on time, making your real estate investments profitable.
Here are 10 things you need to know about tenant background screening.
1. Do Some Legwork Before Completing Background Checks
Before completing a background check on a potential tenant, do a little legwork. Conduct a short telephone interview. Ask the tenant for his or her contact information, if they have any references, and why they are looking to move. Tell them the monthly rent, security deposit amount, and any rules you have. Ask them to complete a rental application.
Taking the time to chat with potential tenants can narrow down the list of applicants to those who are serious, and who qualify.
2. Follow the Rules
When it comes to tenant background screening, there are legal steps landlords must follow. Landlord-tenant laws allow landlords to run background screening on applicants; however, background checks cannot be used to discriminate against tenants based on ethnicity/race, national heritage, religion, disability, gender, and familial status. (Note: familial status is trickier than it sounds; avoid advertising any rental unit as “perfect for a single professional” even if it’s a studio that can only fit one person.) As a landlord, you must apply the same screening guidelines to all applicants.
3. Not All Background Checks Are the Same
Many organizations offer tenant background screening. They can screen for past evictions, past address history (which is often included in full credit reports), credit reports, criminal records, etc. Decide which screening tool is best for you, and make sure you understand which reports are included.
4. Run a Full Credit Report
A full credit report includes a FICO score, address history, employment history, public records, and of course all of the applicant's credit account history, giving a landlord a good overview of how applicants manage their financial obligations. Reports will help determine whether applicants pay their bills on time. Can they afford the monthly rent? Have they ever declared bankruptcy? Do they have any judgments against them? By having a complete credit history, you can make a more informed decision.
5. Running a Criminal Background Check
A standard credit check won’t detail an applicant’s past criminal convictions. To run a criminal background check, first make sure such a check is permitted in your state and city. Before considering an applicant's criminal record, remember that federal laws forbid landlords from rejecting applicants only on the basis of a criminal record. The law states that landlords must consider the "nature, severity, and age of a conviction" among other factors.
6. Check Nationwide
Some screening tools only cover statewide background information. Opt for a background check that covers the entire country, in order to avoid surprises.
7. Screen All Occupants (Not Just the Contact Tenant)
On your application form, ask for the names of all occupants and run a background check on each. As a landlord, you want to make sure everyone who will be living in your unit is a qualified tenant. Don’t let a bad tenant sneak through by screening only the main applicant.
8. Never Disclose Private Information
Once you’ve run a background check, never disclose the contents to others. The information must be kept private and in a safe place, away from those who should not have access. You can be held liable if you divulge private or sensitive information without permission, including to other landlords. Also, remember not to reveal information about yourself: introduce yourself as the manager (never the landlord), never give out your home phone number or home address, and use a PO box and rerouted phone number.
9. Look for Misleading or False Information
Use the background checks to look for misleading or false information on tenants’ application forms. By comparing the two documents, you can verify that the application was filled out truthfully. False information is a red flag – what is the applicant trying to hide? With good tenant screening, you can reduce the chance of being defrauded.
10. Don’t Forget to Contact References
Everything may look good on paper, but don’t forget to contact an applicant’s employers and past landlords. Taking a few minutes to call references could save you a lot of grief. They may have important information that was never officially reported, such as late rent payments or damaged property.
A bad tenant can become an expensive, time-consuming and even dangerous nightmare for a landlord. Bad tenants can do more than just default on rent; they can sue you, they can hurt neighbors or drive other good tenants away, they can ruin your rental property, they can even call the local news station on you to paint you as a slumlord. By setting specific requirements and completing the appropriate background checks, you have a better chance of selecting only responsible, quality tenants.
Information is power. Learning all you can about a tenant’s background lets you hand over the keys with confidence.