Tenant screening is an integral component of any rental business. Without thorough and accurate screening, landlords have no protection against legal and financial liability. If you approve a tenant that turns out to be untrustworthy, it’s on you.
To prevent sticky legal issues and guarantee high-quality tenants, tenant screening is a must. While each landlord will have their own preferences during the process, screening should minimally involve looking into the tenant’s relevant histories. Criminal reports give you an idea of an applicant’s general honesty and integrity, while credit histories clue you in on their financial reliability.
Here are four key components to look at when screening tenants.
- Credit History
As mentioned above, credit reports are essential to ensuring an applicant will reliably pay rent. If a tenant regularly makes late payments or has multiple debts, they may not be financially responsible enough to handle rent.
Beyond credit or resident scores, a typical credit report includes lots of other useful information. Be on the lookout for fraud indicators, tradeline summaries, and recent inquiries. These factors give you the bigger picture of an applicant’s credit situation.
Property management software offers screening tools specifically built for landlords. Your software platform will include all the relevant components of a credit report and help you know where to look to make the best decisions about your tenants.
- Background Checks
Background checks involve criminal and eviction histories. Both are a must for landlords. Neglecting these checks could result in damage to your property, harm to your other tenants, and in worse case scenarios, eviction.
Criminal Reports
You can pull criminal reports in three different ways. County records are usually very accurate since they contain local information; however, they’re also limited in range and costly. You can pull from the county an applicant is currently living in, but it’s impossible to know whether that applicant has committed a crime in another county without pulling each one by one.
State records are a faster option but may contain some inconsistencies due to the fact that not all states require county participation.
National records are a good option for landlords. They are the most far-reaching and have the added benefit of being bundled with additional databases like sex offender and terrorist watch lists.
Eviction Reports
Eviction reports can be tricky to get your hands on but relatively straightforward once you do. Because eviction histories are no longer included in most credit reports, you’ll need to go searching for this information via a third-party service.
These records are usually only filed by first and last name, so be extra careful that you’re looking at the right tenant’s records.
If a tenant has had a prior eviction, this is a major red flag. By accepting this tenant, you may be in store for the costly fees of their second eviction.
- Income Verification
On your tenant application, be sure to ask applicants for information about current and prior employers, along with references and contact information for each. As rent is the bottom line of the lease, you want to be sure your future tenants have the funds to pay it.
As the landlord, it’s your responsibility to follow up with employers and verify that an applicant has the job they say they do. You should also require proof of income. This can take the form of a recent pay stub, W2 form, or other documents that renters can upload directly to their application.
As a general rule, it’s advised that rent does not exceed 70% of any tenant’s income. Keep this rule in mind when evaluating renters’ incomes compared to your own rent prices.
- Rental Application
The final component of a thorough tenant screening is your rental application. This is the place to ask any questions not covered by the other parts of the screening process.
For example, include questions about pets (how many, what kind, etc.) and smoking. These are valid grounds to deny a tenant. However, other questions you ask might not be. According to the Federal Fair Housing Act, it is illegal to deny housing based on any of seven protected classes, including race, sex, color, religion, and disability.
If you want the most protection against potential discrimination lawsuits, it’s best to always document your reasoning for denying a tenant. You can also have a legal expert review your application to ensure it meets state and federal housing laws.
Find Great Tenants for Your Properties
If the screening process feels overwhelming, consider using property management software. Most software platforms partner with third-party services that can do most of this screening work for you. Ultimately, you’re in charge of final decisions. Make good ones with solid tenant screening practices and the help of software.
