The tenant background check has long included a check of the person's credit. It's a good snapshot look into the general habits and bookkeeping skills of a potential new tenant, but doesn't always tell the entire story. Still, it is one of the best predictors of a person's ability to consistently pay their bills. Surprisingly, though, only about half of landlords run a credit check before they approve an application. While credit checks can be expensive, the cost can also be passed on to the applicant, so there is truly never any reason not to run one. Scott Safadi of Cal Bay Property Management recommends educating yourself on these three key tips before implementing this policy in your office:
1. Always disclose credit checks. While specific rules vary from state to state, it is generally a bad idea to pull someone's credit without letting them know first. You'll need their permission to do so, and you'll need to inform them that any negative information could prevent them from being approved for an apartment.
2. Splurge a get the report that comes with the FICO score. A basic FICO score will give you a number and not much else. Spend a little extra and you'll get way more information. You can look for recent late utility payments, late rent payments, late car payments and phone bills. Even information about the person's outstanding collection amounts will be made available to you, giving you unique insight into their financial history.
3. Do not use the information you learn to discriminate. There are a number of Fair Housing laws in place to prevent discrimination based on race, gender, age, or religion. Even if you base your denial of an application on a low credit score, there is a chance you could be accused of discrimination. With this in mind, it's important to establish a policy to point to when such accusations arise. Establishing a minimum credit score for renters could help you avoid accusations of discrimination.
Credit checks are just one tool to use when screening tenants, but they can be some of the most important. Whether you decide to use them or not, learning as much as you can about how they work and what they tell you about a potential new tenant is incredibly valuable. Pass on this information to all of your employees who assist with the leasing process!
- Scott Safadi, Cal Bay Property Management
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