August 15th, 2018
During the process of securing a tenant, there are many boxes that need to be checked by a landlord. One of those boxes is the credit check, done on prospective tenants that have passed through the preliminary screening process.
Many landlords find this credit check an essential step towards entering into a leasing agreement. They will check a tenant’s credit history through a credit reporting bureau to see how well an applicant manages their money.
All the information needed to run a credit check on a prospective tenant should be included on the rental application form they have filled out. Details needed include: the candidate’s full name, current address, social security number (SIN) and a big one: consent.
The applicant must consent to this credit check, preferably in writing on the rental application form. If you run a credit check on a non-consenting renter, you run the risk of being investigated by the Ministry of Consumer Services should they file a formal complaint.
Similarly, you must do the credit checks through a verified tenant screening company or authorized agent. You may be required to pay a small fee.
A credit report will detail a person’s financial history over the last seven to ten years. You may get a credit score, depending on the bureau. The scores range from 300 to 850, and lower scores show a higher risk of default. Higher scores equate to less risk, with those above 650 generally understood as average to above-average credit scores.
Always keep in mind, however, that credit scores do not show the complete picture of an individual. The score may not adequately reflect someone’s ability to be a good tenant or neighbour, so it’s best to use that score in conjunction with another screening process. One-on-one interviews and employment references all play a part in finding the perfect tenant.
So now that you have a few credit reports in hand from a few good eggs, what should you be looking for?
First, you should see if the applicant has a record of being late or delinquent when paying bills; this includes student loans, car loans and personal loans. Payment habits could affect how the prospective tenant pays their rent or electricity bills – on time, or not?
Second, see if they have ever been convicted of a crime or arrested. This may spell risk to some landlords.
Third, see if the report includes a section on unpaid rent or lease payments. This would show up if the applicant has been put into collections or has been sued for any funds in arrears.
Fourth, has the prospective tenant been involved in another type of lawsuit or injury claim? If the judgement has been ruled in court, it is usually reported to the credit bureaus. If a prospective tenant has a few legal blemishes on their record, it may make a picky landlord think twice.
Finally, do a quick scan of their financial activity. People with a few normal accounts (telecom companies, student loans, credit cards) open and in good standing show someone who is likely to be responsible with their money; someone who puts their money into the necessary areas on time.
An established credit history means this prospective tenant cares about their financial standing and will do whatever they can to maintain it.
Avoid ‘tenants from hell’ by doing the legwork needed to complete an authorized credit check. This step will only become routine as you continue to rent out your property over the years.
As part of GTALandlord’s 12-step process, we run credit checks on every one of your prospective tenants who pass through our screening process. We know the information secured from a credit report is valuable and imperative to a sound landlord-tenant relationship.