Finding a new tenant can be one of the most stressful parts of property ownership. There are so many factors that contribute to what makes someone a good tenant. And for many people, that process feels daunting.
So you may be wondering how to run a background check on a tenant.
If so, join us as we explore the essential steps for conducting thorough background checks. We cover legal considerations, credit and criminal checks, and much more!
Importance of Tenant Background Checks
Running background checks on potential tenants is essential for any landlord. It’s not just about protecting your property, but also about ensuring a positive rental experience.
Background checks help you understand who you’re renting to and give you insight into their reliability and trustworthiness. By conducting these checks, you reduce the risk of renting to someone who might cause trouble or damage your property.
When you know more about your tenants, you can make better decisions. A thorough background check can reveal a lot about a person’s past behavior. This includes their financial habits and any criminal activity.
It’s an important step in the tenant screening process because it helps you find responsible tenants. These are people who are likely to pay rent on time and take care of your property.
Legal Considerations
Legal considerations are also a big part of this process. You must follow federal and state laws when conducting background checks. This ensures you’re not discriminating against any potential tenants.
Laws like the Fair Housing Act protect tenants from discrimination based on race, color, religion, sex, national origin, familial status, or disability. Always get the tenant’s consent before running any checks to stay compliant with these laws.
Having a solid tenant screening process in place also saves you time and money. Dealing with bad tenants can be expensive and stressful. They might not pay rent on time, damage your property, or even cause legal issues.
By thoroughly checking each potential tenant, you minimize these risks and protect your investment. In the long run, taking the time to do background checks pays off by ensuring you have reliable and respectful tenants in your rental property.
Legal Compliance
When running a background check on a tenant, it’s important to understand the legal considerations involved. Federal and state laws regulate how landlords can use background checks. This is to ensure the process is fair and non-discriminatory.
Before you begin any background check, you must get the tenant’s consent. This is a legal requirement.
A written consent form should explain what information you’ll be looking at and how it will be used. This keeps the process transparent and ensures you’re complying with the law.
Different states have specific regulations on what you can check and how you can use that information. Some states have restrictions on checking criminal records or using credit scores in your decision-making.
Make sure you’re familiar with the laws in your state. This will help you avoid any legal pitfalls and ensure a fair process for all applicants.
Data Protection
When you collect personal information from applicants, you need to handle it carefully. This information includes social security numbers, addresses, and employment details.
Protecting this data is not just a legal requirement but also a matter of trust. You should store this information securely and only use it for the intended purpose.
It’s also important to be consistent in your screening process. Apply the same criteria to all applicants to avoid any claims of discrimination.
Keep detailed records of your screening process and decisions. This documentation can be useful if there are any disputes or legal questions later.
How to Run a Background Check on a Tenant
Before running a background check on a tenant, you need to gather essential information. This step is crucial because it provides the data you need to conduct thorough checks.
Start by having potential tenants fill out a rental application. This form should ask for basic personal details like their full name, date of birth, and social security number. These details are necessary for accessing credit reports and criminal records.
Employment information is another key part of the rental application. Ask for current and previous employers, job titles, and contact information for their supervisors.
This helps you verify their employment status and income. Stable employment is often a good indicator of a reliable tenant who can pay rent on time.
Other Factors
Rental history is also important. The application should include details of their current and previous residences. Ask for the addresses, the dates they lived there, and the contact information of their landlords.
This allows you to check their history as a tenant and identify any potential issues. Positive feedback from previous landlords is a good sign that the applicant is a responsible tenant.
Financial information is necessary, too. Request details about their income, bank accounts, and any outstanding debts. This helps you assess their financial stability.
You want to ensure they can afford the rent without struggling. It’s also helpful to ask about any past bankruptcies or evictions. These can be red flags that need further investigation.
Finally, include a section for references. Personal and professional references can provide additional insight into the applicant’s character and reliability. Make sure to follow up with these references to get a complete picture.
Conducting a Credit Check
A credit check is a vital part of running a background check on a tenant. To start, you’ll need to obtain the tenant’s consent to run a credit check. This can be done through the rental application or a separate consent form.
Once you have permission, you can request a credit report from one of the major credit bureaus: Equifax, Experian, or TransUnion. These reports will give you a detailed look at the applicant’s credit history.
Scores above 700 are considered good, while those below 600 may be a cause for concern. But the credit score is just one part of the picture. Look at the entire credit history to get a fuller understanding.
Check for any late payments, defaults, or collections. These can be signs of financial instability. Also, look at the types of credit accounts the applicant has.
A mix of credit cards, loans, and other accounts shows they have experience managing different types of credit. Be cautious if you see a history of late payments or accounts in collections, as this could indicate a risk of missed rent payments.
It’s also important to consider the applicant’s debt-to-income ratio. This ratio compares their monthly debt payments to their monthly income.
A high debt-to-income ratio can be a red flag, suggesting they might struggle to afford rent. Ideally, their total debt payments should not exceed 40% of their monthly income.
Performing Criminal Background Checks
A criminal background check is an essential part of the tenant screening process. To begin, you need to obtain the tenant’s consent to perform a criminal background check.
This is usually included in the rental application or a separate consent form. Once you have permission, you can use various services to conduct the check. Many online services specialize in tenant screening and can provide comprehensive criminal background reports.
When reviewing the results, pay close attention to any convictions, not just arrests. Convictions indicate a legal judgment, whereas arrests alone do not imply guilt. Focus on recent and relevant convictions.
It’s also important to understand your state’s laws regarding the use of criminal records in tenant screening. Some states have specific rules about what can be considered and how far back you can look. Make sure you comply with these regulations to avoid any legal issues.
When you find criminal history in a tenant’s background, you need to decide how to proceed. It’s important to have a consistent policy for handling such findings. Consider the type of crime, how long ago it occurred, and whether the applicant has shown signs of rehabilitation.
Verifying Employment and Income
Verifying a tenant’s employment and income is a critical step in the background check process. This helps you ensure that the tenant has a stable income and can afford the rent.
Start by asking for recent pay stubs, tax returns, or bank statements. These documents provide a clear picture of the tenant’s financial situation.
Contacting the tenant’s employer directly is another effective method. Most rental applications include a section for employment information, such as the employer’s name and contact details.
Reach out to the employer to confirm the tenant’s job title, salary, and length of employment. This step verifies the information provided by the tenant and gives you additional confidence in their ability to pay rent regularly.
Stability and History
It’s important to consider the tenant’s job stability. Someone who has been with the same employer for a long time is generally a safer bet than someone who frequently changes jobs.
Stability indicates a consistent income, which reduces the risk of missed rent payments. However, be understanding of recent changes due to circumstances like the COVID-19 pandemic, which has caused many people to change jobs or careers.
Looking at the tenant’s employment history can also be helpful. A steady work history suggests reliability and responsibility. Ask for references from previous employers if possible. These references can provide insights into the tenant’s work ethic and reliability.
For self-employed tenants, income verification can be a bit more complex. In these cases, ask for additional documentation such as bank statements, client contracts, or profit and loss statements. These documents help confirm that the tenant’s business generates enough income to cover rent.
Checking Rental History
Checking a tenant’s rental history is a key part of the background check process. It gives you insight into how they’ve behaved as a tenant in the past. This can help you predict how they’ll treat your property and fulfill their rental obligations.
Start by asking for a list of previous addresses. This should include contact information for former landlords.
Reach out to these landlords to gather more information. Ask about the tenant’s behavior, whether they paid rent on time, and if they took good care of the property.
It’s also important to know if the tenant gave proper notice before moving out and if there were any disputes or issues during their tenancy. A positive reference from a previous landlord is a strong indicator of a responsible tenant.
Look for patterns in the rental history. A tenant who frequently moves might not be as stable as one who has stayed in each place for a longer period.
Frequent moves can indicate instability or problems with their tenancy. However, there can be valid reasons for moving often, such as job relocations, so it’s important to consider the context.
Evictions
Check for any evictions. Evictions are serious red flags. They usually indicate major issues such as non-payment of rent or significant breaches of the lease agreement.
If you find an eviction in the tenant’s history, ask for details and consider how recent it was. A single eviction from many years ago might not be as concerning as a recent one, especially if the tenant has since demonstrated responsible behavior.
In addition to contacting landlords, you can use tenant screening services to verify rental history. These services provide reports that include eviction records and other relevant information. This can help confirm what the tenant has reported and provide additional details.
Consistently checking rental history helps you make more informed decisions about your tenants. And this, in turn, ensures that you’re choosing people who have demonstrated reliability and responsibility in their previous rentals.
The Keys to Choosing Tenants
Understanding how to run a background check on a tenant is essential for any landlord. By following these steps, you can be sure to choose responsible tenants, protect your property, and create a positive rental experience.
Founded in Memphis in 2002, Reedy & Company is one of the area’s leading property management companies. Our experience includes managing over 3,500 properties owned by local, domestic, and foreign investors.
Contact us today to find out how we can help you with your property management!
