Screening Credit Reports Like Your Property Depends On It

You likely know why credit reports are useful—to help you assess potential tenants’ financial responsibility and predict their ability to pay rent—but they’re only as useful as your dedication to understanding them. 

Landlords who rent their own property tend to screen more meticulously; they have more of a financial and well-being stake in it, after all. But if you’re renting on behalf of someone else, this feeling of personal investment might be missing, which can lead to less stringent screening. 

This is why it’s more common among multi-unit landlords to suffer financial loss, property damage, and legal disputes resulting from inadequate screening. 

So, in order to avoid this tendency as a multi-unit landlord, whether you’re screening applicants yourself or you’re managing a team who does it for you, incorporate these tips into your screening process.

How to read key sections of a credit report

The sections below are from a trans union credit report that we provide to our larger leasing professionals.

Basic personal details 

This section includes the applicant’s identification and contact details, such as name, address, and social security number. It also shows when the applicant first opened a credit account and when they last checked their score.

How to use this info:

• Check the accuracy of the applicant’s name, address, and social security number.
• Ensure there are no discrepancies that could indicate potential fraud or misidentification.

Residences 

This section provides details about the applicant’s current and previous residences, including the address and duration of stay for each.

How to use this info:

• Verify the stability of the applicant by checking how long they stayed at each address.
• Longer durations can indicate stability and reliability.
  
  

Employment 

This section explains the applicant’s employment status, including current and past employers, roles, and employer addresses. If the applicant doesn’t have an employment history (i.e. students), the names of their schools may be included instead.

How to use this info:

• Verify the applicant’s employment status and check the stability and duration of their employment.
• For students, verify their educational history to ensure they have a steady background.

Credit history

This is perhaps the most important section, as it shows the applicant’s actual credit situation and gives you a sense of how reliably they might pay rent. It contains detailed information about:

• Bankruptcies: How many times the applicant has gone bankrupt.
• Legal items: The number of debts that have become delinquent and been referred to an attorney, a collections agency, or a court for legal action.
• Collections: How many times a collector has been required to collect outstanding debt. 
• Banking closed for cause: How many times the applicant has had their account closed by a financial institution due to a specific cause or reason.
• Registered items: The number of bankruptcies, court judgments, liens, and other similar legal actions related to the applicant that have been registered with credit bureaus.
• Inquiries: The number of times the applicant has inquired about their credit score up until the current month.
• Collection inquiries: The number of inquiries made on the applicant’s credit report by collection agencies or debt collectors who are attempting to collect on a debt.
• Inquiries within 6 months
• Trade first opened: The date that a credit account or trade line was first opened by the applicant.
• Trade last opened: The most recent date that a credit account or trade line was opened by the applicant.
• Current negative trade: The number of credit accounts or trade lines currently in a negative status, such as being past due or in collections. 
• Paid trade: The number of credit accounts or trade lines currently in a positive status, meaning they’re paid in full.

How to use this info:

• Pay close attention to any bankruptcies, liens, or judgments.
• Consider the age and context of these records, as older incidents may be less relevant than recent ones.
• Note the number of credit inquiries and assess the applicant’s current financial behavior.

Current credit accounts 

This section details all credit accounts, indicated by different letters. You’ll often see accounts such as:

• I: Installment account, such as a car loan or mortgage.
• O: Open credit, such as a credit card or charge card.
• R: Revolving credit, such as a line of credit or home equity line of credit (HELOC).
• M: Mortgage account.
• C: Collection account, typically a debt that has been sent to a collection agency.
• F: Finance company account, such as a loan from a finance company.

For each account, you can also see:

• Count: How many of each type of account the applicant has open.
• HighCred: The highest amount of credit that has been approved.
• CredLimit: The current credit limit.
• Balance: The current balance.
• PastDue: The amount that is owed from past statements.
• Payment: How much the applicant has paid towards the current statement.
• Available: The percentage of the credit limit that is currently available.

How to use this info:

• Review the types of credit accounts, their balances, and payment histories.
• Note any accounts in good standing and be cautious of those with frequent late payments or high balances relative to credit limits.
• Check the count of each account type, the highest amount of credit approved, current credit limits, balances, past due amounts, payments, and available credit.

Overall credit assessment 

A list of entities that have requested the applicant’s credit report. Multiple recent inquiries can indicate the applicant is seeking new credit, which might be a sign of financial distress.

How to use this info:

• Note the number and type of recent credit inquiries.
• Frequent inquiries might indicate financial strain or aggressive credit-seeking behavior.

An easier, more affordable way to run credit checks

By thoroughly reading and understanding each section of a credit report, you can make more informed decisions when screening applicants. This not only helps in selecting reliable tenants but also protects the financial interests of your enterprise. 

For more help with properly screening tenants and choosing the best applicants possible, sign up for Rhenti’s industry-leading leasing software today.