When needing your properties to be sold, finding the right real estate agent is very important. This will determine the success of the over-all transaction. You sure want to make the most out of the deal, right?
The key to having success as a landlord (aside from investing in the right properties) is renting to the right tenants.
Rental profit margins are thin to begin with. If you rent to the wrong person and end up chasing down rent, going through an eviction, or repairing excessive property damage, that profit can get eaten up very quickly.
Before you hand the keys over, take the necessary steps to vet your prospective tenants. Aside from verifying all the information on the rental application, you should also consider running a credit check.
If this is a new process for you, you might wonder how to run a credit check on a tenant. Here’s a quick how-to primer.
1. Know Your Tenant’s Rights
First things first – make sure you fully understand the rights of your tenant before you run a tenant credit check.
A person’s credit history contains a wealth of personal and sensitive information. For that reason, you will need to get the applicant’s permission in writing prior to running the check.
You can either include a clause on the rental application or have a separate addendum for the applicant to sign.
This is also the time to let them know if you charge a fee. Many landlords charge an “application fee” that will cover the cost of the credit check. If the applicant passes, you can always apply the amount in the form of a credit towards the first month’s rent.
2. Get the Requisite Information
Once you have your applicant’s written permission, you’ll need to ensure you have all the information you need to get the check done.
You’ll need a full name, driver’s license number, date of birth, current address, and current employer’s information. Most, if not all of this, will be on your rental application.
If you plan to verify employment and reach out to the applicants current or former landlords, do that prior to running a credit check. You might get info from a former landlord that will automatically rule someone out, and you can then avoid the credit check step altogether.
3. Get the Check and Analyze
Now it’s time to get the credit check performed. Using the agency of your choosing (like Experian), provide the necessary info.
If it’s your first time running a check, you will need to take steps to verify that you are indeed a landlord. This is an important step and necessary for fraud prevention.
Once you have an account with the credit agency, check results will come back to you quickly. Once you have the results in hand, you can analyze the applicant.
Look for red flags like bankruptcies, a history of late rent payments, or a large debt-to-income ratio. Some credit reporting services will also provide information on any previous evictions.
4. Follow Up
Once you’ve read the credit report, you can make your final decision. If the report raised red flags, feel free to reach out the applicant and ask for additional info.
If you find a dealbreaker, you’ll need to let the applicant know why you decided not to rent to them. You need to provide a letter stating the reason you rejected their application and the information about the credit reporting agency you used.
Want More Information About How to Run a Credit Check?
If you had been wondering how to run a credit check on rental applicants, we hope this article helped. As you can see, it’s a fairly straightforward process. It’s also worth it for the potential headaches you might save yourself.
Our article section maintains a wealth of valuable information for landlords. Check it out today and get the best return on your real estate investment!
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