As an independent landlord, the last thing I want to deal with is a tenant that avoids paying rent on time or at all. Considering the average cost of eviction is $3,500, and can reach up to $10,000.It can be a devastating business that I should try to avoid at all. Furthermore, with a very expensive eviction fee, I may be only left with a vacant rental unit. I will most likely have to pay for it out of my own pocket along with other financial responsibilities. It’s not a hidden fact that a nonpaying tenant can be very detrimental to the success of my rental business.
With this in mind, screening my potential tenants with a complete background check is incredibly vital. After all, it’s my money and my property that’s on the line.
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Red Flags in a Tenant Credit Report
A credit report is a key component of tenant screening. It assists landlords in spotting plenty of credit red flags, including:
- The tenant has a history of paying bills on time.
- He possess a significant amount of debt.
- If my tenant is likely to pay rent each month.
Continue reading to learn why landlords need to check a credit report and guidance on what to look for in a credit report.
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Why Landlord Checks The Credit Report?
My credit report shows landlords my credit score and financial history. Landlords check my credit to evaluate my likelihood to pay rent on time. They also check whether I owe rent to any previous landlords.
Note: It is strongly suggested to contact a legal counsel that is familiar with both credit reports and tenancy laws.
What to Look for in a Tenant Report?
A credit report contains a gold mine of information for a potential landlord. I can find out, for instance, if a specific person has ever filed for bankruptcy or has been:
- late or delinquent in paying rent or bills.
- convicted of a crime, or, in many countires,even jailed.
- evicted (the legal right to get information on evictions, however, may differ among states)
- involved in another kind of lawsuit such as a personal injury claim, or
- financially active enough to establish a credit history.
Information in credit reports covers the past seven to ten years.
Depending on the type of credit report I order (the offerings vary according to the agency I deal with), I may also get an applicant’s credit score. The most widely used credit score is the FICO score. It ranges from 300 to 850 and purports to indicate the risk that an individual will default on payments. Great scores indicate less risk. Generally, any score above 650 is considered a medium risk or less.
Another kind of credit score is VantageScore. Credit reporting agencies created this score to compete with FICO scores. VantageScores have the same range (300-850) as FICO scores.
I should put too much value in a high credit score. It doesn’t reflect many other good-tenant characteristics (such as the ability to get along with neighbors and take good care of my property) that is very important.
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Landlords check credit reports to evaluate whether a tenant is capable of paying rent on time, but this is not the only metric that matters to them. I’ll not let a low credit score or a limited credit history stop me from pursuing a rental. I will definitely use the advices above to help set myself and my credit score up for success when I enter the rental market.