October 4th, 2018
When you’re trying to choose the perfect tenant, a credit check is one of the most crucial steps. You want to ensure your prospective tenant has a good credit score before moving forward with a leasing agreement. But in addition to receiving a credit report, it’s important you understand what it is you’re reading.
Credit reports can act as a financial safety blanket, ensuring your prospective tenant is stable, and able to pay their rent in full and on time. A credit report will show you the details of a person's financial history over the last seven to 10 years, including things such as loans, bankruptcies, minimum payment amounts for debt owed, late payment history and credit card history. Credit scores range from 300 to 850, with the score split into three “categories.”
It’s important to remember that while a credit score may be a decent reflection of a person’s financial standing, it does not reveal a full picture of what they might be like as a tenant. There are many elements to finding a good tenant, which is why it’s important to gather as much information as possible, ask all of the questions you feel necessary, and try to get a reference from a previous landlord.
Credit scores will fall into one of four major categories, defined as excellent, good, fair, and bad. Each of the categories is associated with certain credit behaviours. The higher a score is, the lower risk a person will pose and vice versa.
If a tenant’s score falls into this range, it’s an indication of some serious credit problems, and you can consider them a high risk tenant. Whether it's the result of overdue credit bills or consistent borrowing without the means to pay back, this kind of behaviour could seriously inhibit your ability to get the rent you’re owed each month in a timely manner.
Fair means the applicant has an moderate to above-average credit score. You can definitely feel more relaxed offering a leasing contract to them, however, scores in this range usually mean a person has debt or isn’t always timely with recurring payments.
This is a good sign of healthy credit and definitely a candidate you can be confident about. They pose a low risk and can be expected to make payments when they are due.
Once you're in this range you know the tenant has excellent credit, and will pose little risk. Financially, they are the ideal candidate, but make sure you attempt to get an insight into what they would be like as a neighbour and tenant, too.