Image from www.seniorliving.org
A common part of beginning a new lease is filling out a rental application provided by the landlord, which asks important information about an applicant’s qualifications as a new tenant. Before the renter is accepted, he or she will need to pass this test. In another post, we’ll cover the elements of a typical rental application and what you should have ready when applying for a rental.
The testimony of the renter on the rental application often isn’t enough: to get a third party to make sure the renter is telling the truth, the agent or owner will pull a credit report. What’s in a renter’s credit report, and why does it matter? How can owners make the best use of credit reports from bureaus like Experian or TransUnion?
First, it is a check on the renter’s identity.
Credit reports tie together your name, social security number, previous residences, and and payment history on bills like credit cards and student loans. We encourage property owners to make sure that the name and addresses on the application match the history shown on the credit report. Any conflicting information should be taken seriously and asked about to avoid fraud.
Second, the credit report gives the owner a sense for existing financial burdens.
It’s easy to make $100,000 a year and pay $1,000 a month in rent; it’s a much harder when the applicant has $150,000 in student loan debt, some significant balances on credit cards, and a shiny new BMW car payment. No matter the income or job type of the applicant, it’s important to understand the debt side of their balance sheet, which drastically reduces the availability of cash to go toward rent. Also keep in mind that the rent being charged will often exclude cable, Internet, or phone-related subscriptions; these are often overlooked by both sides and add at least a couple hundred dollars per month in additional expenses.
Third, credit reports demonstrate that the tenant makes monthly payments a priority.
Beyond giving a view of the renter’s existing burdens, the credit report shows a month-by-month summary of payment history. Every credit card company, loan issuer, or collections agency has kept the credit bureaus aware of the renter’s financial payment history. If there’s years worth of on-time payments, despite having a lot of debt, this person is likely a good candidate for the unit.
If you’re a renter, don’t be surprised by your financial history! Download your own credit report before beginning your search for a new apartment, and you may not need to pay for it. Thanks to FACTA (The Fair and Accurate Credit Transactions Act), you can get a free credit report once a year. While they’ve got great commercials, you can’t get it from FreeCreditReport.com (which gives away the credit report while signing you up for a subscription service). Instead, try visiting AnnualCreditReport.com, which is the official site to get your free credit report.
If you’re a landlord or agent, do not accept personal credit reports from individual applicants. Usually in the form of computer printouts, these reports can easily be tampered with. In addition, the reports consumers receive about themselves are not geared toward third parties and have far more data than you need. Instead, you should use a commercial credit check service. As long as you can prove (using supporting documents) that you’re checking credit only to qualify the applicant for a business transaction or contract, you can usually pull someone else’s credit report.
Leasing a home is a long-term relationship, and both sides should trust each other! Third-party credit reports are just one way that this trust can be established early.
