Screening Tenants – Credit Check

by Mr. Cheap

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This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

Credit Check

Check out Rachelle‘s excellent post on this. She recommends Tenant Verification Services, which I don’t find as enticing as she does. I joined the Landlord’s Self Help Center which includes a membership for Rent Check Credit Bureau whom I’ve used and like.

Whichever service you use, sign up early.  It takes time for them to give you a membership, so if you wait until you’re ready to process an applicant before you sign up, you’ll be scrambling to get them to authorize you.  I’d sign up with a credit check service at least a week or two before you’ll need to run a check.

Because the credit check costs money, do this after everything else has checked out.  On the other hand, a $20 credit check is the best money you’ll ever spend, so don’t skip doing one to save some cash!  Look at their credit history and try to figure out what their story is. I looked at some people with MASSIVE debt. They had a bunch of delinquencies from 3 years ago and had been steadily paying down their debt since. It was pretty obvious to me that they were people who were turning their life around after some mistakes, and I was willing to rent to them (in spite of their sub-optimal credit).

Often landlords will say that you won’t get applicants with perfect credit: people with perfect credit buy, they don’t rent. I haven’t found this to be completely true (students and young professionals will often have good credit and still rent). Depending on your target market, it may not be realistic to hunt for someone with perfect credit. I’ve never had to rent to someone with awful credit, and in fact probably wouldn’t. If they don’t pay other people, why would they pay me?  I don’t own low-income housing, people who do will probably have to accept far rougher credit histories.

If at all possible, it is very helpful to have someone who knows what they’re doing go over a few credit reports with you.  They’re a little daunting to interpret the first time you see one.

My mantra when renting is “no tenant is better than a bad tenant”

Rejecting Applicants

At the screening or credit check steps you’ll rule out a number of applicants.  There are different schools of thought on how to go about rejecting them.  Both Rachelle and Alexandra told me not to commit to getting back to applicants on a specific timetable.  I can’t help myself from following the golden rule, and I haven’t followed this advice (although it’s probably wise).  I’d be very annoyed if a landlord wouldn’t tell me when I’d hear back from them and I usually tell tenants I’ll let them know in 2 or 3 days.

Alexandra advocates not giving them a timetable and instead of rejecting applicants, just don’t contact them again.  If they contact you, just tell them you’re still processing applications (or have rented to someone else if you have).  She says they’ll get the message and look elsewhere when they haven’t heard from you for a week or so.  This is probably the safest approach from a legal perspective, but I couldn’t bring myself to do it.

Rachelle advocates the following:

Use exactly these words.

“I am sorry to inform you that your application is not accepted”.

If he asks you why? Tell him that you don’t need to give him a reason.

“I’m not giving you a reason. I am not renting the apartment to you.”

Again, this is probably a great approach, but seemed quite harsh to me.

A buddy who has a lot of experience as a landlord advised me to just say “I’ve decided to rent to someone else”.  He said, even if there isn’t someone else he’s renting to, it’s technically true if he’s decided to rent to someone else in the future instead of the current applicant.  I asked him if rejected applicants have ever gotten angry when they see him advertising a unit after rejecting them, and he said it’s never come up for him (but thought it was a funny idea and would be an awkward conversation if they called him on it).

In the end, I wasn’t 100% comfortable with any of these, and as a compromise politely rejected people by e-mail (which is perhaps cowardly) and hoped no one called.  No one argued or fished for more details.

Offering the Unit

Just because you say “the unit is yours”, it isn’t a done deal until the lease is signed.  I had a nice couple who ran into financial problems three years ago but looked pretty good.  I offered them the unit and was coming a couple of days later to sign the lease with them.  They were grateful and happy I offered the unit to them.  The day of the signing the man called me and asked if I was still in Waterloo or in Toronto.  Turns out, they’d continued their apartment hunting, found a place they liked better and decided not to rent from me after all.

Some people I told about this said they’d have been angry at the couple (saying they wanted to take the place and backing out at the 11th hour before signing the lease).  I was just grateful that they told me before I’d rented a car and gone to Toronto.

If I offered the unit to someone who started delaying signing the lease, I’d probably offer it to someone else (as they’re clearly using the unit as a “back up”).

Along with signing the lease, I get the first and last months rent from the applicant.  They don’t get the keys until the current tenants have moved out, so there’s a bit of time to make sure checks clear and whatnot before they have a key and possession.

Thanks again to Rachelle and Alexandra! More details in future posts…

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{ 10 comments… read them below or add one }

1 Rachelle

The reason I like TVS is because they have no annual membership fee and Rent Check does. Rent Check’s membership will cost you $50. If all you have to do is one or two credit checks it will increase your costs per credit check too much. Of course a membership at the Landlord Self Help Center and a deal on Rent check would definitely be worthwhile. What is really important is doing a credit check no matter how much it costs.

I also have another approach to renting, I get a deposit for the apartment on the spot when they hand in the application. People are less likely to back out if you take money from them. I only take one deposit at a time and deal with only one application at a time. This way they stop shopping. If they back out I keep their money. If I reject them I give their money back. It only takes me a few hours to decide if I want the applicant and do all the checking on them.

2 Sampson

I’ve used TVS in the past and am also a fan. Sure beats going through either Equifax or TransUnion and all their requirements. In the past, I’ve also had the potential tenant pull their own credit report (before I figured to use TVS), and they have been happy to do it.

I am a huge supporter of the credit check as absolutely required before renting to a potential tenant. If a renter gets past the initial screen (based of ‘soft’ factors and the actual meet and greet), then they also MUST pass my credit screen too. I’ve had my place vacant and passed over people willing to offer more money simply because their credit reports raised too many red flags and potential for trouble with rent payment.

“no tenant is better than a bad tenant” is a great mantra.

3 Lewin

“Alexandra advocates not giving them a timetable and instead of rejecting applicants, just don’t contact them again. If they contact you, just tell them you’re still processing applications (or have rented to someone else if you have). She says they’ll get the message and look elsewhere when they haven’t heard from you for a week or so. ”

That sounds unprofessional, bordering on hypocritical. We get upset when tenants don’t show up for appointments or express initial interest then are never heard from again, yet turn around and do something similar to them? What would happen if this exchange took place?

Landlord: “I’m at the house, are you coming for the viewing?”
Potential tenant: “I’m still on my way, just sit tight.” …then tenant never shows up, figuring eventually landlord will “get the message” and go home. Come on.

4 Mike

I agree with Levin. When I used to rent, I thought I was committing to the apartment when I put an application/deposit it. Not getting back to people who take the time to fill out an application is incredibly rude.

Great series by the way.

5 Dave

As a landlord, my time is valuable and I don’t like prospects making appointments and not showing up without ever giving me a heads up. So I usually tell prospects up front that filling out an application is not a guarantee that I will rent to them. They usually ask me if I could tell them when I get new. I usually say I will get back to them with in 3 or 4 days. Most people usually call me after the 3 days. If I decide to reject their application, I just say: “I decided to rent to someone else”.

6 Sam

As someone who’s renting, I really appreciated one landlord who took the time to send me an email to let me know I was rejected. No, this wasn’t because of poor credit but he actually explained that he wanted a couple since he needed long-term tenants and since I was still single then, he told me most of the single tenants tend to stay shorter than those who are couple or have kids.

7 HLL

IMO screening is the MOST important part of renting a unit out.

When rejecting an applicant, saying the least possible is the best way to avoid potential problems in the future. Landlording is manifestly NOT like dating: Can your date take you to court if you blow them off? Well, rejected applicants can. This is not about being polite, it’s about protecting you, your family and your investment.

I recommend using TVS, very easy credit checks and they cost me less because I’m a member of the Ontario Landlord Association (OLA). Check them out if you are serious about being (or seriously thinking about becoming) a landlord.

8 QD

I use “I have decided to go with another applicant” when the why’s and the give me a reason come, I just repeat and say I’m sorry. The most times I’ve had to repeat this in a conversation was 3 times, before they hung up. Sometimes a thick skin is necessary.

9 Martin

Hello:

I was hoping someone might be able to help me. I have a past tenant that has cause about $7,000.00 in damages. I am trying to track her down and was wondering if I can use a previous credit check application to look at her credit report to find her so I can take her to court?

Thanks in advance,

Martin

10 Megan

I was told that the best way to reject an application is to tell some one ” I’m sorry you weren’t a successful applicant” and ” It is our policy not to give reasons why”. That way now one can use your comments to take you to court.

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