Landlords should properly screen prospective tenants by running credit checks, verifying income, confirming employment, conducting criminal and other background checks, and verifying prior landlord and residence histories in order to assess whether a prospective renter will make a good tenant. Proper screening helps landlords avoid the common problem of accepting applicants who end up being problematic.
If you have applicants for rental property and need a good tenant screening tool, we recommend RentPrep. They offer a full range of financial and background checks to ensure you are selecting from the best candidates.
Here are the 7 steps to take when screening tenants for a rental property:
1. Determine What to Screen For
There are 5 areas of a person’s history and background which are worth screening. They are: income, work history, evidence of criminal background, credit, and previous residence. While some suggest that you don’t need to screen for all of these, a wise landlord will screen for all of them and with every applicant. Careful screening will produce indicators you can use to filter prospects; and, good-caliber candidates will usually have the following:
- Income that meets or exceeds the 3-times rule (see below)
- Good work history with apparent tenure on the current job
- Verifiable income from employer and/or tax return information
- Credit that meets or exceeds your filtering level (generally 620 or above)
- Criminal background check does not uncover any felonies nor a pattern of misdemeanors
- Prior residence and landlord checks show favorable tenancy
As a landlord, there are ways that you can learn how to screen tenants yourself. However, that involves making multiple phone calls which can sometimes be fruitless, paying individually for certain items like credit checks, and running up against potential compliance issues and even being prohibited from accessing certain information you need.
How Tenant Screening Software Can Help
Even legal complications can arise during the tenant screening process, related to things like checking credit or asking illegal screening questions. Fortunately, there are tenant screening services available that can help mitigate your legal risk along with making the process easy. Tenant screening services like RentPrep are inexpensive and are well worth considering using.
Include Co-Applicants in the Tenant Screening Process
Make sure you are apprised of any potential co-applicants. If a person is going to live in the unit, and are of legal age, they should be considered co-applicants and have their background checked along with the principal candidate.
2. Pre-Screen Candidates
A lot of trouble can be avoided by simply learning how to screen applicants before you even have them fill out an application. Don’t take pets? Ask applicants a simple question regarding that. If you don’t allow tenants with felony backgrounds and let mention you run a criminal background check, many will withdraw from consideration right then. Inform tenants of your credit, income, and previous landlord screening and many will bow out because they know you’ll uncover issues.
Use Social Media as a Pre-Screening Tool
Looking into an applicant’s social media accounts can be amazingly insightful. Seeing the candidate’s uncouth behavior as evidenced on their Facebook or Instagram account should throw up an immediate red flag.
Tenant Screening Software Provides More Information
Once you get beyond the prescreening process and actually take an application, consider using a tenant screening service rather than doing the rest as a do-it-yourself process. Tenant screening software and services are the best tools because they handle all the research and keep you in legal compliance.
3. Run a Credit Check
A credit report can tell you whether or not a prospective tenant pays their bills on time. It also allows you to assess an applicant’s debt and how big a bite monthly payments take out of their income. Credit reports should come from one of the top 3 credit reporting agencies (TransUnion, Experian, and Equifax), or in the form of a FICO or similar score. The best credit reporting will include data combined from all 3 services.
Most landlords or property managers should use the generally accepted figure of 620 or better as their credit score filter.
Tenant Screening Software Provides Credit Checks
Checking credit is one of the areas most prone to legal issues if done incorrectly. Today, the best way to run a credit check and glean insight from the credit report is to use a tenant screening service such as RentPrep. Not only can these be used to check an applicant’s credit, but they will also do it legally and keep you in compliance with the law. Plus for their small fee, they can handle the other background checks.
4. Run Criminal Background Checks
In addition to pulling credit reports, you need to screen renters’ background. You should check state and federal criminal records to determine whether or not the prospective tenant has a criminal history. Sex offender registries and terrorist watchlists are typically included in criminal background checks and important to consider.
Tenant Screening Services Can Do Background Screening
Tenant Screening Services such as RentPrep can help with Federal, State, and local criminal background checking. This is something that you virtually can not do on your own.
5. Verify Income and Employment
One of the most important pieces of information for you to assess is the applicant’s income. That will help you determine whether the applicant can even afford the rent. Credit and financial background checks will provide partial income information.
However, you should check with the current employer to verify they are employed there, in what capacity, and at what salary. Employer’s comments about job performance and history will indicate whether continued employment is likely. Job stability can be as important as the amount of salary.
There are many guidelines on how to screen a tenant for the rent amount. One simple one is called 3 times rule. If the applicant’s gross monthly income is 3 times the rent, they can likely afford it.
Live Tenant Screening Services Have an Advantage
One of the advantages of tenant screening services like RentPrep that use live screeners is that they can make telephone calls to verify current employer, time on the job, nature of employment, and check with previous employers regarding the history on those jobs. Without a service, you’d have to make those phone calls yourself and know what you legally can and can not ask.
6. Check Previous Addresses, Landlords, and Eviction History
You should verify one or more previous addresses. Assuming the applicant was a renter, the history with those landlords should be researched. You want to find out what they paid in rent, if those payments were timely, and whether the landlord or neighbors had any problems with the applicant while there.
It’s generally good to check at least 2 prior landlords. Sometimes, the current landlord is so happy to get rid of a bad tenant that they’ll tell you anything! Because the previous landlords are no longer vested in the situation, they will normally be more forthcoming with the true story about their experience with your candidates.
In addition to checking with previous landlords, you can also check local housing court records to see if the prospect has any evictions, and even look for judgments for damages in their court history.
Conduct These Checks With Tenant Screening Software
Similar to checking with employers, tenant screening with live screeners like that provided by RentPrep can investigate current and prior landlords to find out about a candidate’s previous tenancy. Those services save you from having to make those phone calls yourself and know how to legally inquire about a candidate.
7. Accept or Reject the Applicant
Once you’ve compiled the credit information, background data, and have verified both income and employment, you are ready to make a decision. The sum of the compiled data will point to either an acceptance, a clear decline, or tentative situation requiring a judgment call.
When all the indicators point to a potentially good tenant, you’ll have a sense of who to accept, but it rarely a completely clear picture. In many cases, you won’t find an ideal candidate, but will rather scrutinize the “overall package” of characteristics. If one item is a bit less than ideal, but the other areas look good, you may potentially have a good candidate.
As noted above, you are looking for a candidate who has an overall solid picture in the following areas:
- Income that meets or exceeds your criteria (suggested as the 3-times rule)
- A pattern of stable work history with solid time on the current job
- Verifiable income from the current employer and/or tax returns
- Credit that meets or exceeds your criteria (suggested at 620 or above)
- Criminal background void of any felonies patterns of misdemeanors
- Favorable prior residence and landlord histories
A Judgment Call After Tenant Screening
If tenant screening shows a mostly-qualified candidate, but with a few issues, then it ultimately comes down to judgment call regarding whether or not to rent to them. Some common judgment scenarios include:
- Good verifiable income, but it’s commission based or self-employed – If all the other factors are good, this might be a good candidate
- Good income and time on the job, but credit is below your criteria – if the source of the bad credit was a single incident (like the post-2007 mortgage meltdown) but current credit looks like it’s being handled well, this might make a good candidate.
- There is a court judgment but their payment history looks good otherwise – a good example is a candidate who has a hospital collection resulting from a time when they were uninsured
- Minor criminal violation – perhaps a candidate well into their career has a DUI from when they were in college. They may be beyond that now.
- Problems with a prior landlord even all other data is positive – there are instances where the landlord is the real culprit, or there’s just a personality conflict. This could still be a good candidate, and previous landlords could substantiate it.
Denying An Applicant After Tenant Screening
One of the clearest indicators of a rank amateur landlord is that they will rent to anyone seems willing to pay the rent. It’s better to forego a candidate than to rent to a bad one, and if there are clear indicators that a candidate is problematic, then you are within your rights to decline them.
Clear problem areas include:
- Their income can’t support the rent
- Their credit is too low or payment history is poor across a number of accounts
- They have a criminal history that indicates potential risk
- Employment is unverifiable, they’ve too little tenure on the job, or the employer indicates workplace trouble
- Prior residence research turns up evictions, judgments for property damage, unpaid rent, or problems with neighbors or law enforcement
You can face issues when denying a candidate, so you want to be prepared with supporting documentation and know that you’ve stayed within the boundaries of the law. Tenant screening software and services provide you with the necessary data to ensure you are not making subjective decisions or improperly denying candidates.
Issues with Tenant Screening Legal Compliance
Woven into the complexity of screening tenants is whether or not it’s even legal for a landlord or manager to make certain inquiries. Or, if they do conduct a check, to know how it must be conducted to remain on the right side of the law. This is why we’ve stressed the value of tenant screening services and software that help you maintain your compliance with the law.
Handling Credit Improperly Can Lead to Problems
Anyone trying to get credit and background information on another party must comply with the Fair Credit Reporting Act (FCRA) in regards to what is sought and how it is obtained. An inexperienced landlord or manager may run afoul of the FCRA and not even know it.
Topping the list, credit reporting agencies (CRA’s) require companies – including landlords – pulling credit data to be “accredited.” This can actually involve an onsite inspection of the inquirer’s office which is intended to ensure the business is legitimate, records are secure, and the entity has a valid reason to pull others’ credit data.
Fortunately, most tenant screening services and software companies buffer this process either with an abbreviated compliance process which doesn’t require the inspection, or by providing services in a way that doesn’t require end-user accreditation. These include using summary scores (like FICO score) instead of outright credit data or by having applicants initiate the reporting which they then authorize getting sent to the landlord or property manager.
Another area of importance to landlords is whether their attempts to collect credit information will generate what are called “hard pulls” or “soft pulls” on a person’s credit file. Hard pulls can have an adverse effect on the person’s credit score, albeit minor. Landlords don’t want to find themselves in any kind of dispute with an applicant because they were unaware that their credit could be impacted by a simple rental application.
Legal Requirements After Tenant Screening
Landlords and property managers are bound by the Fair Credit Reporting Act (FCRA) to supply proper responses if a candidate is denied due to their credit report or related factors. These responses are known as “adverse action letters,” and many small landlords and property managers are not even aware they’re supposed to send them.
Some tenant screening services and software generate these letters automatically; others have templates on file for clients to use.
Be Careful You Don’t Illegally Discriminate
Federal fair housing laws protect applicants from discrimination on the basis of race, national origin, age, gender sexual orientation, family status, or disability. So, be vigilant that you don’t accidentally run afoul of the law. Merely asking questions can get you into trouble, and you don’t want to face a lawsuit by turning away an otherwise qualified candidate because you denied them based on illegal criteria. This is why it’s important to properly learn how to screen tenants.
When learning how to screen tenants, you should include: running credit checks; verifying income and employment; conducting criminal and related background checks; and, investigating prior landlord and residence history on all potential residents to determine whether prospective renters will likely make good tenants. Tenants screening software and services can help streamline the process.