Tenant Screening Products for Every Business Model
Tenant Screening Products for Every Business Model
Whether you’re the hands-on type of landlord or prefer to contract out property management, you owe it to your business to routinely review what new services and products are available to investors and managers of rental property. Periodic review of your operational procedures is always a good idea. Working smarter is more effective than working harder. If there’s a new product or a different product that better fits your business needs you might just want to give it a try.
Tenant screening products now being offered deserve your review. Over the years tenant screening has come to include more than just credit reports. Tenant screening now encompasses verifications for identity, address, personal data, employment, source of income, rental history, and personal references; database searches for criminal convictions, evictions, judgments, bankruptcy, sexual offenders, and OFAC terrorist list; background investigative checks; and credit tools such as credit reports and leasing recommendations.
With multiple screening products landlords can tailor the type of screenings most effective for their unique properties and local markets. By using tenant screening products landlords help protect their rental investment. Thorough analysis and evaluation of comprehensive screenings can help lessen the threat of a bad tenant. A key point to remember is to always screen and to use the screening reports that fit your business model.
Identity verification at time of application is a critical first tenant screening of the individual applying to be your next tenant. Obtaining screening reports on an identity thief can be much worse than doing no screening at all. If there is any doubt as to proof of identity, there is no need to advance further time and efforts to qualify the applicant.
Many landlords choose to conduct credit screening as soon as possible in the application process. Better to know sooner rather than later if the applicant is a viable candidate. As has been stated many times a credit report is regarded as the most valuable tool to assess the applicant’s creditworthiness, that is, his ability to pay and to pay on time.
Traditionally a full credit report was the only tool to evaluate an applicant’s credit history. Now you have choices for credit screening – the traditional detailed credit report sent directly to the landlord; a rent recommendation to approve, decline, or accept with conditions based on the landlord’s set rental criteria; or a new innovative credit screening which uses e-mail to complete the request process.
Selecting the right screening tool is an important part of your screening process. To make an informed decision, you must be knowledgeable about your legal responsibilities under The Fair Credit Reporting Act (FCRA), credit reporting agencies (CRAs), and the requirements of your tenant screening services provider. Don’t wait until the last minute to set up a provider account or complete any required certification process. An applicant in search of a new home is eager to get settled. Unnecessary delay in processing may have an unfavorable impact on the applicant’s decision to choose your rental. The good tenant you’re looking for expects good customer service.
In general, credit screening is conducted through membership with a third party service provider. The provider is legally required to have certain documentation on file before granting landlord access to consumer credit information. This would include acknowledgment and acceptance of the user service agreement, permissible purpose, proof of business ownership, and various other business documents. Landlord certification or credentialing may also be required before access to certain credit screening reports can be granted.
Various providers have different names for the credit screening tools they offer. The following designations do not necessarily reference any specific provider or product offering. Landlords interested in credit products are advised to conduct their own research and analysis of providers and products.
Traditional Credit Report
A traditional credit report is the gold standard of credit screening. With a full credit report, you can corroborate information shown on the rental application; review the individual’s payment history including credit accounts, account
balances, and collection accounts; and view reports compiled from public records on bankruptcies, liens, and judgments. You can also see who has recently requested a copy of the applicant’s credit report.
The basic credit report has four sections: identifying information, credit history, public records, and inquiries.
Identifying information identifies the individual by name, alias (also known as), shows current and previous addresses, Social Security number, date of birth, telephone number, and current and previous employers.
Credit history shows the individual accounts (also referred to as trade lines) with historical and current records of payment activities. Each account references:
- The name of the creditor, the account number, and date when the account was opened.
- The kind of credit (installment or revolving).
- Whether the account is in the individual’s name alone or with another person.
- The total amount of the loan, high credit limit, or highest balance on the card.
- How much is still currently owed.
- Fixed monthly payments or minimum monthly amount.
- Status of the account (open, inactive, closed, paid, etc.).
- Payment history (How well the account has been paid).
- Account review inquiries.
If a charged off notation is seen, the creditor has given up, usually after having attempted collection, and then written off the amount.
Public records include tax liens, court judgments (including child support judgments) and bankruptcies. Ideally, the public records section should be blank.
Inquiries show a listing of everyone who has requested a copy of the individual’s credit report. Inquiries are divided into two sections. “Hard” inquiries are ones initiated by completing a credit application; “soft” inquiries are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring the account.
Your screening provider may provide the option to add a credit score to the credit report. A credit score is a numerical value that represents overall credit-worthiness. It is a mathematical formula based on the information in the credit files compared to information in tens of millions of others’ credit files. Credit scoring systems assign points to each factor that indicates ability and willingness to pay creditors in a timely manner. Factors that are considered in the scoring calculation are: payment history, outstanding balances, credit history, new credit, and type of credit. Under the Equal Credit Opportunity Act (ECOA), credit scoring systems cannot use certain characteristics such as race,
sex, marital status, national origin, or religion.
The total number of points, a credit score, provides a means to evaluate credit-worthiness quickly and in a relatively objective manner. In general, the higher the score, the better (meaning less credit risk).
A credit score serves as a general indicator of financial responsibility rather than an absolute measurement of credit risk. It is a prediction of the individual’s ability to pay and to pay on time. It is not a guarantee that the individual will be a
good or bad tenant.
Landlords requiring a traditional credit report must have a one time site inspection of their rental business office (the location where rental records are stored) before being granted access to applicant credit information. The site inspection helps ensure that the applicant’s personal identifying information is kept safe and secure to help protect against identity theft.
Rent Recommendation
A rent recommendation is a report based on a software-based scoring model programmed with your specific credit criteria. The model uses a simple rules base or a statistical based program to evaluate your applicant’s credit risk. The
decisioning model provides a credit recommendation for either acceptance, acceptance with conditions, or decline based upon the applicant’s information and the scoring criteria you supply.
The rules and criteria you set up for your decisioning model should fully reflect your credit policies and give emphasis to those issues that are of concern to your unique operations. In using a rent recommendation model, you do not have
direct access to the applicant’s credit report. The model does the screening for you and you receive an analysis of the applicant’s credit report as per the selected standards.
Online Screening – Email
The latest credit screening option is conducted entirely online through cooperation between the applicant and landlord. Designed to protect the applicant’s privacy and certain personal identifying information and to give the applicant some control over the process, the landlord creates an account through his screening provider, selects the type of credit report, selects payment method, and enters the applicant’s email address. The online system sends an email request to the applicant for approval to send credit information to the landlord. The applicant responds to the email and after answering personally identifying questions, and confirming payment arrangements, submits the credit report request to the credit bureau. The landlord receives a report at his email address.
Conclusion
The landlord’s mantra should be screen, screen, screen. Filling a vacancy without knowing something about the person who will be your partner (willing or not) for the length of the rental contract is creating a liability. A filled vacancy only begins the landlord-tenant relationship. There is no guarantee of how successful and profitable that relationship will be. Screen every applicant, whether family, friend, or that seemingly really nice applicant. If you do not screen, it is a high risk roll of the dice. Are you that lucky?