I have a perspective tenant who looks good on paper. He's already revealed a past bankruptcy and explained how it came about (his employer was located in the WTC and when it went down, the business folded. He tried to find another job but the economy in NYC was devastated. He moved his family to AZ but debts followed. He filed bankruptcy a few years ago. But, they currently own their own home and he has a good, steady job. Wife has a steady job as well - both over 3 years. They are selling their house due to high interest rate because of poor credit and downsizing in hopes of rebuilding credit and eventually buying again).
Work checks out for both of them.
So, how far do you go in doing background checks? I am registered through mrlandlord to do background checks and they offer several options. I think i just need to do a credit check and eviction history? But, the eviction history is going to be for Arizona and I already know they've only been here 3 years and owned their home here - never rented - and prior to that, lived in NYC.
A full credit report from the big three will show you prior residences and residency dates (approximate) to confirm they lived in NY. It will also show "public records" which will include tax liens, judgments, and collection items within the US. It frequently shows some cryptic employment info, other names used, birthdates, and info on the social security number, such as status and where it was issued. All of this info can be used to corroborate the information the applicant has given you. Any "omitted" information MAY be cause for concern, or at least warrant additional questions.
Regarding employment verification, unless you look up the company in the phone book, and call the published number to locate a Human Resources person or a Manager (without asking for the person named as supervisor on the application), you run the risk of getting purely false information. It they have no public phone listing, you need to check public records to see if the business is registered in your locale, or can otherwise be confirmed as legitimate, and then call an officer or contact person of record.
Essentially the same goes for landlord references...if they rent from a company, get the reference "through the front door", not just calling whatever number the applicant provides. If the landlord is a private individual, at least check the county records for the actual ownership and try to confirm the tenant information. Depending on your market, you might be amazed at how many people "rent" from friends and relatives.
As to "what matters", IMHO, the credit report is great, and my primary tool. It does take some study however. The actual FICO score is not terribly relevant to me--what I look for is patterns of irresponsibility. Life Happens to people. You don't have a choice with medical bills. You don't have a choice, sometimes, when a bankruptcy takes place. You need to look at what I consider "consumer" issues.
Some examples I see all the time: Two or three cell phone companies with collection items; Victoria's Sec***, Pi**a Hut, K Ma**, even the local library showing up as collection items. ANY of these types of collection items, I won't rent to you. Medical bills, I ignore. Foreclosure/bankruptcy I MIGHT ignore, if A) it was at least two years ago; B) there is not a rash of abusive consumer items that precipitated the foreclosure; C) There are no NEW late accounts or collections since the discharge (and ideally, there is some new positive account information); and D) everything else, especially landlord reference and steady employment checks out "stellar". One red flag to consider is if several credit cards accounts show "reported stolen". This MAY be an indicator of someone just having trouble paying all their bills. You just have to study the whole picture.
Hopefully, this will at least give you a fighting chance of obtaining a tenant that will actually pay. Most of the time.
Good Luck!
PS- don't forget to give a proper WRITTEN denial letter to those you turn down, per the FCRA; and you also need to securely archive the application documents for three years to protect yourself on several fronts, including Fair Housing.
In regards to open accounts on the credit report, you also want to be comfortable that the applicant is able to pay those monthly payments as well as the rent, and will not be "juggling" their money.
I also did not mention what is for me, the last step in the application process: criminal background check. Assuming your credit, employment, and residency standards are sufficient, and dependent on your market, if all of the above is good, you will rarely find an applicant has a record. You should check, however, as many areas have easy online access. You may or may not have access to a sex offenders registry also. Frankly, these areas present other issues, and it is a decision you must make on what to do and how to handle the information obtained.
Thank you so much for your very informative reply! I appreciate your taking the time to answer so thoroughly.
Can I ask if there is a difference between a "full" credit check and just a credit check? As I mentioned previously, I'm registered through mrlandlord to do credit checks but it doesn't specify if it's a full credit report - I'm not sure what the difference would be?
Also, is there a better or more comprehensive site out there for doing checks?
I am not familiar with the reports from the site you mention, I have always obtained reports directly from the big three (Equifax, Experian, Transunion) or, occasionally, one of their authorized resellers. With these, as a business customer, you do have options as to different types of reports, and the information included in them. They vary greatly from what you receive as a consumer. Of course, there are strict guidelines for obtaining and using these reports, as well.
The reports I access are instantaneous, online, and are less than $10 single, and less than $15 for joint (married) reports.
PS- don't forget to give a proper WRITTEN denial letter to those you turn down, per the FCRA;
Can you expand on what is requires as far as the contents of the denial letter? Must you provide the reason for denial? This would seem to be a point of liability and something one would want to avoid if it is not required. I asked my lawyer the same question and he said I am not required to disclose the reason for rejection, but I did not phrase the question about credit check specifically, just tenant screening failure in general.
Originally posted by "Beachbum":
and you also need to securely archive the application documents for three years to protect yourself on several fronts, including Fair Housing.
Just the application from the applicant, correct? Or do I need to archive the documents that supported my decision as well?
You can Google "Statement of Credit Denial" and find some letters that you can model. The rather generic statements with a checkoff box are, IMHO, sufficiently vague to keep you out of trouble while still meeting the requirements. FCRA (Fair Credit Reporting Act) states (to paraphrase) that if credit is denied based on a credit report, you must identify and provide adequate contact information for that source in order to allow a consumer to dispute any erroneous information.
Occasionally, when you verbally inform an applicant they are denied, they will want to "correct" or add to the information and push forward with the application, so once I decide to deny, I always check off ALL objections that apply. This will prevent a long see-saw exchange and much wasted time (assuming you truly do not want that applicant).
Of overriding importance, is the need to first of all have a written policy outlining your requirements; secondly, to fairly and reasonably apply the same policy to all applicants; and thirdly to maintain the records of past applicants so you can prove you do so in the event of a Fair Housing complaint. And yes, I keep the entire application package, complete with my notations (and my assistant's) and a copy of application fee checks or receipts. We shred them after three years. Approved applicant packages become part of their tenant file, which are maintained until seven years after they vacate for IRS recordkeeping requirements.
Your written policy does not need to be overly complicated, but should take into account some of the points in my previous posts. For example, I do not use the FICO score as a criteria. I DO specify a minimum income level, and what is acceptable documentation of that income. Sadly, you have to be very careful about restrictions such as "no drug convictions". This can be twisted into a Fair Housing issue. Also, you don't want to shoot yourself in the foot by being too restrictive--you'll either miss out on a good tenant, or end up making an "exception" that can also turn into a Fair Housing issue with the next applicant.
What service do you use to pull credit? The service that I use told me that they cannot disclose the actual credit scores to me since I'm not a financial institution or something like that.