For Property Management Companies
Tenant Screening Basics
Why do I need a credit report?
Why do I need a criminal background check?
Should I choose to screen only the applicants who seem risky?
What kind of information do I need to get from an applicant to obtain a credit report?
Can I charge extra fees for the background and credit checks?
What should I do with the applicant's credit report once I have made my decision?
Do I need to give the applicant a copy of his or her credit report?
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Information contained in the answers may not be accurate or current. Answers pertaining to matters of law may not be valid for your jurisdiction. Consult an attorney regarding laws and regulations in your jurisdiction.
Why do I need a credit report?
You can use a credit report to make an informed decision about whether to rent to an applicant. First, having a prospective tenant's credit report will reveal the number and types of open accounts, whether the applicant is carrying an outstanding balance on each account, and whether payments are being made on time. The identifying information given to you by the applicant - such as name, date of birth, social security number, and addresses - can be compared to the data on file with the credit bureau, and this can be used to verify the applicant's identity. Aditionally, the alias identification, fraud alert, and employment history data returned with a CreditLink® Credit History all help to reveal identity theft, and the FICO Credit isk Score assists in getting a picture of how the applicant has handled recent credit transactions. Finally, the presence of public records, such as civil judgments and liens, can be used to determine whether the applicant has a history of not making payments.
Why do I need a criminal background check?
While a credit report will give a you a good look at your prospective tenant's financial history, it says little about the applicant's background. A criminal background check provides information to assess an applicant's compatibility, and determine whether or not the prospective tenant will be a safe addition to your rental community. Additionally, you may be required to screen for criminal history, since some rental subsidy programs prohibit landlords from renting to a tenant who illegally uses controlled substances or is a registered sex offender.
Should I choose to screen only the applicants who seem risky?
Federal and State fair housing laws require that any screening criteria used be applied consistently to all applicants. This means that you should screen all of your applicants using the same methods and standards.
What kind of information do I need to get from an applicant to obtain a credit report?
You must have the applicant's consent in writing to request a credit report. Also, at a minimum, you will need to provide the applicant's name, social security number, current address, and (for a criminal background report) date of birth - the more identifying information you provide, the more detailed and accurate the report will be.
Can I charge extra fees for the background and credit checks?
In California, California Civil Code section 1950.6 limits the fee owners may charge a prospective tenant to cover the costs of screenings. The fee cannot be more than the actual out-of-pocket costs of gathering information on the applicant. As of January 2010*, the maximum fee a landlord may charge an applicant is $41.72. The fees in your state may differ. Please check with your attorney regarding local laws and regulations.
*Allowable cost is adjusted annually based on the Consumer Price Index.
What should I do with the applicant's credit report once I have made my decision?
Effective June 1, 2005, the Fair and Accurate Credit Transactions Act (FACTA) calls for the proper disposal of information in consumer reports and records to protect against "unauthorized access to or use of the information."
The standard for the proper disposal of information derived from a consumer credit report is flexible, and allows the organizations and individuals covered by the Rule to determine what measures are reasonable based on the sensitivity of the information, the costs and benefits of different disposal methods, and changes in technology. In other words, you may destroy the documents however you see fit, as long as they have been rendered unreadable and cannot be reconstructed.
Some jurisdictions require that you keep the records on file for a period of time. If you are a CreditLink® client, your service agreement dictates that you must keep the records on file for a minimum of five years. For more information, check with your legal counsel.
The credit report I received on an applicant had negative information, and I chose not to rent to him. What do I do now?
According to the Fair Credit Reporting Act, you are required to notify a denied applicant in writing.You will need to send or give the applicant a Adverse Action Notice and keep a copy in your file to document your compliance with the law. This is extremely important for full compliance with fair housing laws.
An applicant who I have denied wants to know what is reported on his or her credit report and disagrees with it. What should I do?
A denied applicant may, within 60 days of the date of the report, request a copy of the credit report. The information needed by the applicant should be provided on the Adverse Action Notice that you give.
Do I need to give the applicant a copy of his or her credit report?
In California, pursuant to California Civil Code 1950.6(f), if the applicant has paid an application screening fee and requested a copy of the report, you or your agent must provide a copy. Other jurisdictions may have different requirements. For more information, check with your legal counsel.
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