Credit & Background Checks for Tenants

This post is not to sing the praises of always doing credit and background checks. It reduces credit losses, and it helps insulate you from Fair Housing claims. You either believe, or you don't. For the believers, here are three pieces of advice.

• Establish a tiered system for credit scores. Best scores get best rental rates. Moderate or poor scores can still rent, but at a higher rent and with more security deposit (depending on state law maximums) or a guarantor. Worst rates cannot rent.  Banks, auto leasing companies, insurers, and credit cards do this. You should, too.
• Under federal law, you must provide an Adverse Action Letter to anyone denied housing, or offered housing on more expensive terms, because of information gained from third parties. This is a simple form letter. Find examples all over the Internet.
• Run the background check each time a tenant renews. Criminal history and/or creditworthiness might have changed during the last rental term. Take action according to the report results, or simply be on the lookout for problems. You might not want to give a tenant the "benefit of the doubt" on late rent payments, just because they used to be a good tenant, but the credit score has now crashed 200 points.