Why landlords run credit checks on potential tenants
A popular adage says “those who do not remember the past are doomed to repeat it.” A landlord that does not check a potential tenant’s credit report is doomed to renting to someone they should not have. This is why landlords should run credit checks on potential tenants. Landlords can pay six figures for a property that they will rent to people. Before you turn the keys on your six figure investment over to a tenant, shouldn’t you at least know something about the person who will be occupying your property?
A credit report is a snapshot of a person’s financial history at the time the report is run. It provides a bevy of information that a landlord can use to determine whether or not to rent to a potential tenant. Although a credit report is not a perfect indicator of whether or not the tenant will always pay his or her rent on time, it is better than having no information on the tenant.
A credit report reflects how well or how poorly a potential tenant has maintained their financial obligations. If the tenant has a history of buying something and then having the account fall into collections, this will be reflected in the report. On the other hand if the tenant consistently pays his bills on time each and every month, this will be reflected in the report. If your potential tenant fails to pay his bills, would you want him or her living in your house? If they don’t pay their VISA bill there is a high probability that they may not be paying their rent someday.
A credit report will also tell you if the potential tenant has a large number of charge-offs or collections on their report. A charge-off occurs when a company is not paid what they are owed and they give up on trying to ever collecting that money. A collection is when the company is actively trying to collect the money they are owed. If there is an abundance of collections and/or charge-offs, this tells you that the tenant has difficulty paying their bills. Why would you want someone like that occupying your property?
The last thing a credit reports shows is whether or not there are any judgments against the tenant or if they have ever filed for bankruptcy. If someone files bankruptcy it is usually because they have accumulated more debt than they can handle which forces them to file for bankruptcy. Landlords do not want to have someone who is unable to manage their finances in their property.
Credit reports are not perfect in determining whether or not an applicant will be a good tenant. Credit reports do tell you something about the financial responsibility or irresponsibility of your applicant. It is that history that you use to determine whether or not to rent to an applicant. Without knowing that history, in the future you will be doomed to being yet another collection on their credit report.