Background Checks

Key Takeaways:

• Tenant background checks help minimize the risk of bad tenants, protect property, and ensure the safety of other tenants.
• A comprehensive check includes credit history, criminal records, eviction history, employment verification, and rental history.
• When choosing a tenant screening service, landlords should consider its reputation, range of services, cost, and customer support.

Why Is Tenant Screening So Important?

Tenant screening is more than just a formality. According to the U.S. Department of Housing and Urban Development (HUD), approximately 2.3 million eviction filings occur annually, costing landlords an average of $3,500 per eviction. A robust screening process significantly reduces the likelihood of tenant disputes, late payments, and the need for eviction. Landlords who invest in comprehensive background checks experience 50% fewer evictions, according to a 2020 survey by the National Apartment Association (NAA).

This screening is crucial for maintaining cash flow, protecting property, and reducing tenant turnover. In short, tenant screening acts as the foundation for a stable rental environment, securing both your property and your income.

What Does a Tenant Background Check Include?

A full background check provides a holistic view of a tenant’s history. By cross-referencing multiple data points—such as credit reports, criminal history, eviction history, employment verification, and rental history—landlords can form a more complete picture of the tenant’s reliability.

1. Credit Check

A tenant’s credit history offers insights into their financial responsibility and ability to pay rent on time. According to TransUnion, 21% of tenants with a low credit score default on their rent within the first year of the lease. By reviewing a tenant’s credit score, payment history, and outstanding debts, landlords can assess whether the individual is likely to meet their financial obligations.

• Red flags: Late payments, high debt-to-income ratios, or bankruptcy filings.
• Best practice: Require a minimum credit score or a higher deposit for lower credit scores.

2. Criminal Record Check

Protecting your property and ensuring the safety of other tenants is paramount. A Criminal Background Check provides insights into whether a potential tenant has been involved in past criminal activities that may endanger the property or community. Keep in mind, though, that federal guidelines from HUD discourage blanket rejections based on criminal history. Instead, landlords should evaluate the type of offense, recency, and severity to make a fair decision.

• Expert advice: “It’s important to look beyond the conviction and assess the context. An offense 10 years ago for nonviolent behavior isn’t necessarily a deal-breaker,” says Mark Green, a property management consultant.

3. Eviction History

A history of evictions is one of the most significant red flags for landlords. Eviction filings signal a history of financial irresponsibility or behavioral issues. By accessing eviction records, landlords can determine if a tenant has been previously removed from a property for failing to pay rent, violating lease terms, or engaging in disruptive behavior. According to Experian, tenants with prior evictions are 80% more likely to be evicted again.

• Best practice: If an applicant has multiple eviction filings, consider offering them conditional approval with a higher security deposit.

4. Employment Verification

Employment verification is crucial to ensure that the tenant has a steady income to cover rent payments. Landlords can verify employment by contacting employers directly or requesting recent pay stubs and employment letters. A tenant should ideally earn at least three times the monthly rent to ensure affordability.

• Case study: In a 2019 study conducted by Zillow, properties where tenant income verification was required had 25% fewer instances of late rent payments than properties that did not.

5. Rental History

Checking a tenant’s rental history provides a snapshot of their behavior in past rentals. Speaking to previous landlords can offer valuable insights into a tenant’s track record regarding property care, timeliness of rent payments, and how well they adhered to the lease agreement.

• Expert quote: “A good tenant reference from previous landlords is one of the best indicators of future behavior,” says Laura Zimmerman, a veteran property manager.

How Does Tenant Screening Work?

Tenant screening services streamline the process, providing a centralized platform for conducting background checks, credit checks, and verifications. SmartScreen, TransUnion SmartMove, and Experian Connect are popular online services that allow landlords to get comprehensive reports within minutes. These platforms use multiple databases to deliver accurate and real-time information.

• SmartScreen: Offers a customizable solution for small and large landlords, with packages ranging from basic credit checks to comprehensive background screenings.
• TransUnion SmartMove: Provides national eviction reports, income verification tools, and credit-based recommendations.

Benefits of Tenant Screening

1. Reduces the Risk of Bad Tenants

Screening helps eliminate tenants who pose financial or safety risks. For example, landlords who use full background checks have reported a 35% lower incidence of property damage due to poor tenant behavior, according to NAA’s 2020 study.

2. Protects Property and Other Tenants

Conducting criminal and eviction background checks helps landlords protect their properties and ensure a safer living environment for other tenants. Knowing who will reside in your property reduces the risk of legal issues, disturbances, and damage.

3. Saves Time and Money

Comprehensive tenant screening minimizes the risk of late payments, evictions, and property damage, ultimately saving landlords thousands of dollars in potential legal fees, repairs, and vacancy costs. According to the Rental Housing Journal, tenant screening saves landlords an average of $2,500 per lease by avoiding problematic tenants.

4. Provides Legal Protection

Tenant screening also helps landlords stay compliant with Fair Housing Laws by providing an objective, standardized screening process. Using services like SmartScreen, which comply with federal regulations, ensures that your screening process is both fair and non-discriminatory.

How to Choose the Right Tenant Screening Service?

When choosing a tenant screening service, landlords should evaluate factors such as reputation, service offerings, costs, and customer support. While free services may seem appealing, they often lack depth in criminal and eviction checks. Paid services, while slightly more expensive, provide a more comprehensive evaluation.

• Reputation: Research customer reviews and case studies to see if other landlords have had positive experiences.
• Services Offered: Make sure the service includes all necessary checks—credit, criminal, rental, and employment.
• Cost: Compare the costs of different packages and assess the value they bring.
• Customer Support: Check if the service offers robust customer support, especially if you’re dealing with complex tenant applications.

Conclusion

Tenant screening is a vital component of property management, reducing the risk of bad tenants, protecting your property, and ensuring a safe, stable rental environment. By using comprehensive background checks that include credit, criminal, eviction, and rental history reports, landlords can make more informed decisions and reduce future risks. Invest in a reliable tenant screening service, and make sure you’re equipped with the data and insights necessary to choose the best tenants for your property.

With expert-backed advice, data-driven insights, and actionable strategies, landlords can safeguard their investments and create positive, long-term rental relationships.

References:

• National Apartment Association (NAA), 2020 Tenant Screening Report
• TransUnion, Tenant Credit Reporting Insights
• Rental Housing Journal, Tenant Screening Practices and Their Impact on Evictions

 

Frequently Asked Questions

What is a tenant background check?

A tenant background check is a screening process used by landlords to gather information about potential tenants before approving them to rent a property. This typically includes a review of the tenant’s credit history, criminal record, and rental history.

Why is a tenant background check important?

A tenant background check is important because it helps landlords make informed decisions about potential tenants. It allows them to assess the tenant’s financial responsibility, criminal background, and rental history to determine if they would be a good fit for their property.

What information is included in a tenant background check?

A tenant background check may include a credit report, criminal record check, eviction history, employment verification, and rental history. Landlords can also request additional information such as references, income verification, and previous addresses.

How long does a tenant background check take?

The time it takes to complete a tenant background check can vary depending on the screening company and the amount of information that needs to be gathered. On average, a tenant background check can take anywhere from 24 hours to a few days.

Can a landlord deny a tenant based on their background check?

Yes, a landlord can deny a tenant based on the information found in their background check. However, there are laws in place that protect tenants from discrimination based on certain factors such as race, gender, and religion.

How can landlords ensure a fair and legal tenant background check?

To ensure a fair and legal tenant background check, landlords should use a reputable screening company that complies with all state and federal laws. It is also important for landlords to have a clear and consistent screening process in place and to treat all potential tenants equally.