As a landlord, you want to know one thing above all others about a prospective tenant. “Will I get paid on time by this one?” The answer is usually the same with each. A definite, Solid Maybe.
The most popular way to find out more about the chances that a tenant will pay their rent is to do a tenant credit check. There are a number of companies out there that will do a credit check for landlords for a fee. A credit check will review a person’s credit report from one or all three of the major credit reporting agencies. The three credit reporting agencies are Equifax, TransUnion and Experian. For a charge, you can receive a credit report on a potential tenant or you can ask the prospective tenant for a copy of his report. They are entitled to a free report once a year.
The landlord will decide if he wants to rent the apartment based on a credit report and a host of other factors, like the interview with the tenant, the references, and more. An option many landlords use is to charge higher rent for someone who has poor credit. Charging a higher rent is not discrimination because the renter is in total control of their spending habits and how they pay their bills. It is not the fault of the landlord if the potential tenant does not pay their bills on time. This is similar to the way that people with higher risk factors pay more insurance. Adding a security deposit might be another way to “motivate” a risky prospective tenant.
A credit check for landlords is the easiest type of screening for a landlord to do when assessing if they should rent an apartment to a certain individual. The more thorough the screening the better. Once you have a tenant in your apartment it can be difficult if not impossible to evict once they stop paying. I hear the tales from landlords that evicting someone can take several months after rent payments stop. During this time the tenant can cause a lot of costly damage, as well as ruining your cash flow by not paying their rent.
Some landlords will think that running credit checks are a waste of money but having to evict someone is even more costly. First of all, the loss of monthly rent. You probably won’t recover any missed rent payments once they are evicted. The second is the potential damage the tenant does while they are still living in an apartment they KNOW they’ll be kicked out of shortly. The security deposit rarely covers all the damage after they leave. There are also legal fees to take into account too.
The importance of doing pre-tenant screening, including a credit check for landlords before renting to a potential tenant is without a doubt. In today’s market this is an important step because many people have damaged credit due to all the home foreclosures, short sales and unemployment, which may or may not indicate a bad tenant. As a landlord you want to review the credit report to discover THE REASON for the poor credit. Repeated late payments or missed payments might be a sign of the irresponsible behaviors you’re looking to avoid in a tenant. You should be fair and understand that a one missed payment does not make someone a deadbeat. You are looking for patterns of missed, late and/or partial payments. A pattern shows how someone manages their lives. One lonely missed payment on someone’s report is probably just a blip on an otherwise good record.
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