One of the most critical decisions you'll make as a landlord is selecting the right tenants for your rental property. Rental fraud, property damage, and non-payment of rent are major concerns for landlords that can impact your property’s profitability and overall reputation.
Conducting thorough tenant background checks is an essential safeguard against these issues. By delving into a potential tenant's background, you can gain valuable insights into their financial responsibility, rental history, criminal record, and overall suitability as a tenant.
In this article:
- Why conduct background checks?
- Benefits of conducting background checks
- How to conduct a background check on a tenant
- Using background check services
Why Conduct Background Checks?
Background checks are crucial when choosing tenants. Although they add another step to the rental process, they are essential to help you pick the right renter for your property.
Risk mitigation
Background checks provide valuable information that helps reduce various risks associated with renting a property. By examining a tenant's rental history, credit history, and criminal record, you can identify potential red flags that may pose risks to your property or other tenants. If an applicant’s background check shows repeated non-payment of rent, a criminal record, or a low credit score, they may be a high-risk tenant.
Legal compliance
As a landlord, you are often subject to legal requirements regarding tenant screening processes. Conducting background checks helps ensure compliance with fair housing laws and tenant selection regulations by providing you with data-driven information about an applicant’s financial, criminal, and rental history. By following established screening procedures and treating all applicants equally, you can choose a tenant fairly and avoid housing discrimination claims.
Protection of investment
Rental properties are significant investments, and selecting the right tenants is crucial for protecting that investment. Background checks allow you to assess an applicant’s financial stability, rental history, and likelihood of fulfilling lease obligations and choose a tenant who is responsible and reliable. Looking at an applicant’s rental history helps protect you from property damage and financial loss, allowing you to safeguard your rental income and preserve your property’s value.
Benefits of Conducting Background Checks
Conducting tenant background checks on prospective renters offers numerous benefits for landlords beyond just assessing creditworthiness. Background checks can minimize the risk of property damage, ensure rent payment, and maintain a safe living environment.
Minimizing the risk of property damage
Background checks can reveal whether a potential tenant has a history of causing damage to rental properties. By identifying individuals with a track record of negligence or vandalism, you can avoid costly repairs and keep your rental in good condition.
Ensuring timely rent payment
A tenant's financial stability is crucial to their ability to pay rent consistently and on time. Background checks provide insights into a tenant's employment history, income, and credit history, helping you assess their ability to meet financial obligations. By selecting tenants with a stable income and a responsible financial track record, you can reduce the risk of late or missed rent payments, ensuring a steady stream of income from your rental property.
Maintaining a peaceful living environment
Background checks are vital in promoting a safe and comfortable living environment for all tenants. By screening for criminal history and past eviction records, you can identify potential risks to the safety and well-being of other tenants.
Collecting prior landlord references during tenant screening can provide you with valuable insights into a tenant’s behavior and their ability to get along with past landlords or neighbors. Selecting tenants with a clean record enhances the overall atmosphere of the property and fosters a sense of security among residents, which translates into lower tenant turnover and higher income from your rental property.
How to Conduct a Legal and Respectful Background Check
When conducting background checks on prospective tenants, you must adhere to legal guidelines to ensure fairness and prevent discrimination. Understanding and following key regulations, such as the Fair Housing Act (FHA) and the Fair Credit Reporting Act (FCRA), is essential when conducting tenant background checks.
Here are five best practices for conducting a background check on a tenant while maintaining legal compliance and treating applicants with respect.
Understand fair housing laws
The Fair Housing Act prohibits discrimination in housing based on race, color, religion, national origin, sex, familial status, or disability. Landlords cannot decline a rental application based on any of these protected classes. Instead, treat all applicants fairly and evaluate them based on objective criteria shown in the background check. Financial, criminal, and rental history all show empirical data related to an applicant’s suitability as a tenant.
The Fair Credit Reporting Act requires landlords to notify potential tenants if anything in their credit report is being considered against them. This allows renters to dispute any inaccuracies and advocate for themselves before you deny their application.
Obtain consent for background checks
Before conducting a background check, you must obtain written consent from the prospective tenant. This consent should be provided in a separate document from the rental application, and the purpose of the background check should be clearly explained. You should also inform applicants of their rights under the Fair Credit Reporting Act, including the right to dispute inaccurate information.
Use reliable screening criteria
When screening tenants, focus on legitimate factors relevant to their ability to fulfill lease obligations, such as rental history, income level, and credit history. Establish consistent screening criteria and apply them uniformly to all applicants, and avoid using arbitrary or subjective criteria that could result in discriminatory practices.
For example, landlords shouldn't have a blanket policy not to rent to anyone with a criminal record because this is considered too broad and overly harsh. Instead, you should consider the nature of the offense, the recency of the crime, and whether the applicant would jeopardize neighbors’ safety and well-being.
Respect privacy and confidentiality
Handle sensitive applicant information with care and respect their privacy rights. Ensure that personal information obtained during the background check process is kept confidential and used solely for its intended purpose. Be sure to safeguard all applicant data against unauthorized access or disclosure to protect your applicant’s right to privacy.
Communicate transparently with applicants
Maintain open and transparent communication with applicants throughout the background check process. Clearly explain the steps involved, the types of information collected, and how they will be used to evaluate their application. Address any concerns or questions applicants may have and provide them with an opportunity to clarify or dispute information obtained through the background check.
By understanding and adhering to the Fair Housing Act and the Fair Credit Reporting Act, you can ensure that your tenant screening practices are lawful, non-discriminatory, and respectful of applicants' rights. Effective communication and transparency throughout the process can help you build positive relationships with prospective tenants.
Using Background Check Services
A powerful background check service is key to helping you pick the best tenants. Apartments.com offers a simple online tenant screening process delivering more reliable results. Unlike competing services, which may rely on multiple third-party sources, Apartments.com stands out by partnering directly with TransUnion. This ensures you receive comprehensive reports detailing evictions, credit history, and criminal records to help you make an informed decision.
Here's a snapshot of the advantages you'll find on Apartments.com:
- Streamlined tenant screening procedures
- Direct access to detailed TransUnion reports
- Unique support for additional applicant parties, including co-signers and guarantors
- Integrated platform to gather extra tenant documentation when required
With Apartments.com, you can equip yourself with the tools you need to make tenant selection a more structured and reliable process.
This article was originally published on March 8, 2024.
FAQs
Do I have to run a background check on a potential tenant?
While you’re not legally required to run a background check on a tenant, it’s in your best interest. A thorough background check helps you assess a potential tenant’s reliability and financial stability.
What should a comprehensive background check include?
A comprehensive background check should include the following:
- Identity verification
- Credit history
- Criminal records
- Employment confirmation
- Previous rental history
Each component of the screening report provides crucial information about your prospective tenant's responsibility and reliability.
What if a potential tenant has a criminal record?
A criminal record doesn’t automatically disqualify someone from being a good tenant. The nature of the crime, its relevance to tenancy, and the time that has passed since the offense are all factors to consider.
It’s important to note that the Fair Housing Act can apply to criminal history, according to the HUD Office of General Counsel. This means that rejecting an applicant solely because they have been convicted of a crime is a violation of the Fair Housing Act. However, it’s not a violation to deny an applicant with a criminal record if you can prove it is because you believe they will jeopardize the safety and well-being of neighbors. Make sure your decision is not rooted in stereotypes or prejudices, and consult with a lawyer if you have questions when navigating a prospective tenant with a criminal record.
How do I ensure my background check practices are legal?
Obtaining written consent from potential tenants before conducting a background check, notifying applicants if something in their credit report is being considered against them, and basing your tenant choices off objective data instead of characteristics are three ways to keep your background check practices legal and respectful. Apartments.com’s screening process can help you navigate background checks legally and efficiently.
What happens if a potential tenant refuses a background check?
A potential tenant refusing a background check could be a red flag. As a landlord, you have the right to require a background check as part of your rental application process, so you’re entitled to consider other applicants if a potential tenant is unwilling to undergo a background check.
What should I do if a background check reveals a poor credit history?
Poor credit history doesn't necessarily mean a tenant will be unreliable. Consider factors such as employment stability and income, and have a conversation with the applicant about their credit history. Some landlords consider options like higher security deposits for applicants with bad credit.
I've conducted the background check. Now what?
Once you've gathered all the information, it's time to assess it. Look at their credit score, employment history, criminal records, and past rental behavior and consider any patterns, both positive and negative. This will help you make an informed decision about whether they're a good fit for your property.
Can I reject a potential tenant based on the results of a background check?
Yes, you can reject a potential tenant based on the results of a background check if your decision is compliant with the Fair Housing Act.
Your decision to accept or deny an applicant must be based on objective criteria related to the prospective tenant’s ability to meet the obligations of tenancy, like rent payments at previous rental properties or unverifiable income. It’s essential to have consistent acceptance criteria for all applicants and apply them uniformly throughout the tenant screening process to prevent any perception of discrimination and ensure fairness in your tenant selection process.
