How to Do a Background Check on a Tenant: Tips and Tricks
As a property owner, it’s your responsibility to make sure you’re renting to reliable tenants capable of paying rent on time and taking care of your property. While it would be nice to take an applicant's word for it when they say they're reliable, there are plenty of landlord nightmare stories advising against that.
Failing to properly screen prospective tenants could bring about serious problems in the future, so it's best to fully vet a tenant before entering into any kind of rental agreement to avoid tenant-landlord conflicts in the future.
Property owners should keep in mind that no tenant screening report is complete without a thorough background check, as background checks reveal red flags in a tenancy that are best avoided whenever possible.
In this blog, we’ll cover why running a background check is important, what to look for once you get the results, how to conduct one step-by-step, and legal considerations to keep in mind when requesting background checks.
Why it's important to conduct tenant background checks
Background checks allow property managers to verify the information presented in a tenant’s rental application. This is an important part of the screening process, because it confirms that an applicant is who they say they are and hasn’t demonstrated problematic behaviors in the past.
Conducting a background check on a tenant also increases your chances of choosing a tenant with a history of paying rent in full and on time -- not only does a background check reveal an applicant’s criminal history, it also reveals their financial history. If a tenant is unable to keep up with their current or previous bills, you’ll be able to tell.
What to look for in a tenant background check
A lot of information can come up when running a background check on a prospective tenant. As a property owner, there are a few categories you should pay close attention to, such as an applicant’s criminal history, credit history, employment history, and rental history.
Renting to someone with a criminal history is risky for any property owner. Recent convictions or arrests can signal poor temperament or bad judgment, which can lead to issues when attempting to resolve tenant issues in the future. Ideally, your tenants will be reasonable people who are open to healthy conflict resolution. Talking to someone who is erratic or prone to aggression is never a situation you want to find yourself in as a property owner. As a result, it’s important to analyze a tenant’s criminal history before approving their tenancy.
Keep in mind that while you are within your rights as a landlord to assess an applicant’s criminal history, you cannot ask them if they’ve ever been arrested. The most you can ask them is if they’ve ever been convicted of a crime.
It’s also worth mentioning that you should use your judgment when assessing a tenant's criminal history. If they have a minor misdemeanor on their record dating back ten years, the chances of them being a problematic tenant are low, and you may want to give them a chance.
Once you’ve verified that a prospective tenant is not a danger to you, your rental property, or their future neighbors, you should assess their credit history. Credit reports reveal the likelihood of tenants paying their rent on time. Negative marks such as bankruptcies, collections, late payments, liens, or unpaid debts signal an inability to keep up with financial obligations. Considering that rent is often one of the biggest financial obligations a tenant has, it’s best to rent to a tenant with no or minimal negative marks on their report.
Some tenants may be hesitant to let you run a credit check on them because they fear a hard inquiry on their report. Reassure them that when a credit check is conducted as a part of a background check, it registers as a soft inquiry. Once you’ve obtained their consent, you can run a credit check on them through one of the three major credit bureaus (Equifax, Experian, or TransUnion), or a property management software, such as Azibo.
Another important factor to take into account when evaluating a tenant’s background check report is their employment history. Gaps in employment may suggest a tenant is unable to hold down a job or otherwise produce a stable income. If you suspect an applicant has been dishonest about the length of their employment at a particular company or has fabricated a position altogether, you may want to contact their previous employers.
Background checks reveal, at minimum, the company's contact info, such as their physical address, email address, and phone number. If this basic contact information doesn't come up, the company a tenant claims to have worked for may not exist.
Lastly, property owners need to verify a tenant’s rental history. Keep an eye out for past evictions, broken leases, or property management complaints. Lack of any rental history may be an issue for some property owners; however, it shouldn’t be an instant disqualifier. New renters can be good tenants as long as they possess other qualifications, such as a clean criminal record, a high credit score, and stable employment.
How to run a background check on a tenant
After you've established criteria for evaluating tenant background checks, you'll want to know how to properly conduct one. Here is a step-by-step process for conducting a legal and thorough background check on a prospective tenant:
Get signed consent
Running any kind of background check or credit check on a tenant is illegal without their consent. Before conducting a background check, you need to obtain written consent from the potential tenant. The easiest way to do this is to include a section on the rental application where you explicitly ask for permission to run a background check.
Gather tenant information
In addition to signed consent, you’ll also need relevant and accurate information about the tenant, such as their legal name, date of birth, and social security number.
Most property owners will also request a copy of a tenant’s driver’s license or identification card, as well as their vehicle information if they plan to bring a car.
It may also be a good idea to request a tenant’s previous addresses, landlord references, and employer references to cross reference information derived from their background check.
Choose an approved background check service
With the necessary documentation in hand, you can move forward and select a background check service company to run your reports. There are several background check services to choose from -- just make sure that the company you choose is approved by the Federal Trade Commission. Only FTC-approved companies should have access to this type of sensitive tenant information.
Tenant screening reports cost between $25 to $75 per applicant. Keep these prices in mind when selecting a background check service company, and only purchase reports for applicants you're serious about, as these costs can quickly add up.
Run a criminal background check
Criminal background checks involve the federal, state, and county offices. Federal inquiries go through the FBI, while states and counties usually make criminal activity, such as warrants, arrests, and convictions, publicly available on their websites. Criminal background checks usually include the following information about a tenant:
- Time served in jail.
- Time served in prison.
- Terrorist activity (FBI).
- Sex offender status.
- Pending criminal charges against the applicant.
- Description of the applicant’s physical appearance.
Request a credit report
Property owners can run a credit check on prospective tenants by establishing a tenant screening account with one of the major credit reporting bureaus (Equifax, Experian, or Transunion). Each bureau acts according to the Fair Credit Reporting Act and provides property owners with a certain amount of credit checks per month. Signing into your account and requesting a credit report on a tenant should only take a few minutes.
A credit report will reveal whether an applicant has become delinquent on any of their accounts, as well as any derogatory marks they’ve accumulated over the years. Recent evictions, foreclosures, and bankruptcies will be visible on their report. Credit checks also reveal if a tenant's utility bills or unpaid rent have ever entered collections.
Check previous rental history
Depending on the background check service company you choose, you’ll be able to pull previous addresses, evictions, and landlord disputes. If rental history information is incomplete or vague, you can always call the tenant’s previous landlords to discuss their experiences with your applicant. This is why it's important to request previous landlord information during the rental application process. However, if there’s no reason to suspect poor tenant behavior, you don’t have to investigate further.
Legal considerations to running background checks on tenants
Whether you’re going through a third party or running tenant background checks yourself, rental applicants are protected by tenant rights at the federal and local levels. Here’s what you should keep in mind:
Background checks often reveal more information than needed to evaluate whether or not a rental applicant would make a good tenant. It’s important not to misuse this information to discriminate against a certain group of people. The Fair Housing Act prohibits property owners from denying housing to someone based on their race, color, religion, gender, sexual orientation, familial status, or national origin. Make sure that throughout the rental application process, you are not assessing tenants based on any of their protected classes.
The Fair Housing Act applies to all rental applications across the country. However, state laws differ in terms of how property owners can execute tenant screening reports. Depending on the state your property is located in, you may be limited in terms of how far back you can go in your background checks, as well as what information you have access to. Make sure you are familiar with local laws governing the tenant screening process in your state before conducting background checks on your tenants.
When you should turn a tenant away based on a background check
Finding the perfect tenant for each one of your units is a difficult task. You’ll probably have to compromise on at least some of your rental criteria to avoid vacancies, but the criteria you choose to compromise on is up to you. You may choose to rent to an applicant with a non-violent criminal history, or someone with no rental history but a decent credit score.
However, in some cases, it's best not to take the chance. Applicants who are registered sex offenders or have a violent criminal history might post too much of a threat to your rental property. Tenants who have been caught engaging in criminal activity at previous units might also be deemed too risky.
When selecting an applicant for approval, you need to take into account both your interests as a property owner and the safety of your existing tenants, which, in this case, goes hand in hand. You wouldn’t want to put your unit or your renters in harm's way by renting to the wrong tenant.
The final word on tenant background checks
The most important thing to keep in mind when conducting a background check is to use the report to evaluate a tenant’s rental, criminal, employment, and credit history. Additional tenant information, such as their racial background, sexual orientation, and familial status, should not be used to disqualify a tenant or lower their chances of being approved, as this would be considered discriminatory and illegal.
You’ll also need to obtain signed consent from all applicants before moving forward with background checks. As always, double-check your local laws to make sure you’re conducting the tenant screening process correctly, as this will help avoid misunderstandings with prospective tenants.