Why You Should Run a Credit Check on Potential Renters
It’s not uncommon for property owners to feel bad about running credit checks on their potential renters — especially with the economy in a downward spiral these past few years. But, a credit check does a lot more than tell you the score of your potential — it also tells you information about how that future tenant will impact your property. With a credit check, you can uncover any missing information (especially information left out purposely on the application); therefore, it’s important to run a credit check on every potential renter.
Verify the Basics
With a credit check, you can verify the basic information about your potential renter, such as their name, address, birth date, and social security number. Many times, you can use the information from the credit check instead of running a background check, which saves you time and money. You can also see what previous places they’ve rented and if any of those previous landlords have reported them to the credit bureaus for non-payment. It isn’t uncommon for potential renters to hide previous rental information, especially if they skipped out on paying for their last property.
Payment History and Reliability
One of the most important things a credit check will do is tell you how reliable a tenant is at making his payments. Credit checks tell you if a potential renter is frequently late on his bills, how often he is late, if he has accounts in collections, etc. You can see how long ago some credit issues occurred — in some cases these late payments could be over seven years old. Also, you can see if they’re keeping current on their payments now, the number of closed accounts they have and their total debt.
When a potential renter gives you his employment information, you use that income to verify whether or not a renter could pay your rent amount. A credit check can also tell you how much your potential renter pays each month in debts, which can help you determine if he can really afford your rental payment. For example, you have a renter who makes $800 per month and the rent is $200 per month. So on paper he looks like he can afford it, but if you calculate in the fact that he has $400 per month in debt, he is now pushing the limit on his income.
Credit checks might be a hassle and force you to turn down a tenant you grew fond of in an interview, but these checks are necessary to protect your property. Credit checks give you information that lets you decide whether or not a tenant will actually pay, his history for making payments, and his past rental history. You can always discuss the findings with your potential renter to see if they have a viable explanation. However, in the end, not running a credit check could mean you’re renting to a person that doesn’t intend to pay for his rental contract.