What does a rental background check consist of?

What Does A Rental Background Check Consist Of

Chapter 08

What’s Included With A Tenant Background Check?

What does a rental background check consist of?

A rental background check is like an x-ray that allows you to see beneath the surface of a potential tenant.

This image might ring a bell for nostalgic Simpsons fans.

Perhaps you remember the time Homer went to the doctors for an x-ray.

The purpose of the rental background check is to see any issues that might be hiding beneath the surface.

It’s a simple way to identify red flags and avoid problematic tenants.

In this post, we will answer the question, “What does a rental background check consist of?”

For the purpose of simplicity, we will use one of our SmartMove reports as an example for reference in this post.

But before we get ahead of ourselves…. let’s start with…

What Is A Rental Background Check?

A rental background check is an additional screening tool that allows landlords to see various aspects of a tenant applicant’s past behavior.

The majority of the data you’ll see comes from the three major credit bureaus:

  • Transunion
  • Equifax
  • Experian

This data helps to paint a picture of how responsible a tenant might be.

Some landlords look at the overall credit score while others pay specific attention to the details of the report.

Where Do Credit Bureaus Get Their Data?

“These three credit bureaus collect information from your creditors, such as a bank, credit card issuer, or auto finance company. They also get information about you from public records, such as property or court records. Each credit bureau gets its information from different sources so the information in one credit bureau’s report may not be the same as the information in another credit bureau’s report.” – Source FederalReserve

What Does A Rental Background Check Consist Of?

Here is what one of our SmartMove rental background checks consists of:

We will now cover each topic in more detail. You can click any of the items above to be pulled down the page to learn more.

Personal Details

smartmove personal details

The tenant applicant enters this information. All of this information is required except the middle name.

Read this if the applicant does not have a social security number or is unwilling to provide it.

The personal details provided in this box are important because there are only three main identifiers for any person:

  1. Name
  2. Date of Birth
  3. Social Security Number

With over 325 million U.S. residents it’s best to get all three identifiers.

Stephen White is the name of our CEO here at RentPrep and the last time we checked there were over 2,600 matching names in the U.S. database.

This means it is still possible to have two Stephen White’s with the same exact date of birth.

Tenant’s Current Address

tenant address history

This is also provided by the tenant and is important information. This current address should match the information provided on the rental application.

It’s a good idea to get understanding of the applicant’s current living situation.

Do not assume that they’re currently renting as they might own their current home and are going through a divorce or perhaps they live with family currently.

A simple pre-screening question such as “Do you currently rent, and if so, where?” should help you better understand their current situation. It’s a good idea to keep notes throughout the tenant screening process so you can reference back to them later.

Tenant Applicant’s Income

 

tenant screening based on income

 

With our SmartMove reports, the tenant applicant will write in their income.

At this point, the applicant should be well aware of your rent to income ratio.

Your minimum income requirements should be laid out in your tenant screening criteria.

You’ll want to check the following:

  • Does the income listed on the rental background check match what they listed on their rental application?
  • Do they meet your minimum income standard?

Tenant Applicant’s Credit Score

Rental Background Check Credit Score

The rental background check through our SmartMove reports supplies a credit score ranging from 300 – 850.

The score will display along with a color range for easy interpretation.

  • Bad
  • Poor
  • Fair
  • Good
  • Excellent

The score itself is determined by several factors that we will break down in the image below.

 

Tenant Credit Score Breakdown

A credit score is a compilation of many factors. TransUnion has created its own “ResdientScore” that is tailored to the rental industry.

This is done by giving more weight to payment history as this information is more important to a landlord.

There is usually a discrepancy between the credit bureaus and what they report for a credit score. Each bureau uses a different FICO model to assess credit.

This breakdown is specific to the TransUnion ResidentScore used with SmartMove. If your applicant runs their own credit through a different service, the number’s may differ.

For instance, Credit Karma uses a VantageScore model where TransUnion SmartMove is based on a FICO model.

The FICO model is a much better model (in our opinion) because that it was the large majority of banks use when they assess credit for a mortgage.

Credit Karma knows that their customer wants to see a better score. If they featured lower credit scores using the classic 2004 FICO model they wouldn’t retain as many users.

Address History

renter address history

Large databases are cultivating information on us all the time.

You signed up for a magazine 10 years ago at one residence and had a cell phone plan billed to your last residence. There’s a chance that information was sold and eventually ended up in one of the databases that TransUnion pulls information from.

This is how a background check is able to pull up previous address history. Keep in mind these addresses are not verified and do not necessarily mean they were renting.

The applicant could have been living with family in one of those known addresses.

Compare the address history to what was included in your rental application. You’ll want to call and verify with the current and previous landlords that the applicant was a tenant.

Good rental history is a sign of a stable renter. If you have someone with no rental history, you’re taking on more risk with an unknown commodity. In these instances (usually young or student rentals) many landlords will require a co-signer and/or increased security deposit.

Employment History

 

Similar to the address history the employment history records are cultivated from large databases.

These records are not verified, so it’s important that you call the current employer to verify information.

We’ve done thousands of these verification calls as part of Platinum reports here at RentPrep.

In the video above our CEO, Steve White walks you through how to do an employment verification call.

Tradelines

 

tradelines smartmove explained

Trade Lines (or tradelines) are accounts on a background check or credit report.

This image shows the trade lines associated with our SmartMove reports.

The most common accounts for renters are revolving (credit cards) or installment accounts (anything with a fixed payment plan such as an auto loan or student loan).

You can learn more about trade lines from our knowledge base article.

Collections

When a renter has a trade line that doesn’t get paid the account can be sent to collections.

The most common accounts are local utilities, credit cards, medical debts, and cell phones.

This is a red flag because most services do not go immediately to collection upon payment being late.

Creditors typically send an account to collections after six months of nonpayment, but this time frame varies depending on account type.

A one-time late payment can be considered a mistake, but a collection on your report shows a pattern of non-payment.

Some collections can garner wages. This can only happen if the creditor takes the consumer to court and is awarded a judgment.

If you have a renter with garnished wages, it means those funds are removed from their pay before they even see their paycheck.

Consumer Statement

consumer statement example

A consumer (or your case a tenant applicant) has the opportunity to issue a consumer statement on their report.

The above image comes courtesy of creditcards.com and is a sample of what a consumer statement looks like. In this case a consumer statement to TransUnion pertaining to identity theft.

This is a concise statement of 100 words or less that gives the consumer an opportunity to explain things in their report.

There are two kinds of statements (according to Experian) that a tenant can request to be added to their credit report.

  1. An account-specific dispute
  2. General statement

The account-specific dispute is linked directly to the account in question. If that account is removed from the report, the statement is removed at the same time.

The general statement lasts up to two years on a credit report and is not deleted when a specific account is removed from a report.

This could be helpful in explaining if their credit was negatively impacted due to fraud, medical debt, or an error or dispute with a business.

Inquiries

Credit inquiries tenant background checks

In this section of the background report, you’ll see any inquiries on the applicant’s record.

Credit inquiries are requests by a “legitimate business” to check your credit. If your applicant applied for an auto loan with a bank, the bank would check their credit creating an inquiry.

Credit inquiries are classified as either “hard inquiries” or “soft inquiries,” and only hard inquiries have an effect on a FICO score (source MyFico).

Our SmartMove reports are a soft pull whereas a credit check is a hard pull on credit.

Let’s say your applicant recently applied for multiple student loans, multiple auto loans, and multiple credit cards.

The student and auto loans would each be treated as one inquiry. That’s because it is considered normal to shop around for these.

However, each credit card inquiry will be recorded as a separate inquiry. This is because someone might be considered a higher credit risk if they’re trying to open multiple lines of credit in a short amount of time (source MyFico).

Public Records

Public records consist of the following:

  • Bankruptcies
  • Civil Judgments
  • Tax Liens

There are two types of bankruptcies.

Chapter 7 – These remain on a credit report for 10 years from the filing date because there was no repayment

Chapter 13 – These are deleted seven years from the filing date because there was partial or full repayment

This is why some landlords will make concessions for a Chapter 13 bankruptcy (such as an increased security deposit) but will not accept an applicant with a Chapter 7 on record.

If your applicant has a civil judgment this means they were sued and lost and owed a debt by the court. These remain for seven years on a report.

Tax liens occur when a tenant applicant has not paid their taxes. Unpaid tax liens remain for 15 years where paid tax liens remain for seven years from the paid date.

Information will display alongside the public record if it is paid, discharged or settled (source – Experian).

As of July 1st 2017, the large majority of judgments and liens are removed from credit reports.

Due to these changes, it’s estimated that 96% of civil judgments and 50% of tax liens have been removed from credit reports. Bankruptcies were not affected (source).

This is if you’re running a credit report. Our Basic, Pro and Platinum reports include a separate search outside of a standard credit report that allows us to access this information.

Eviction Records

Rental background check eviction record

The image above shows a template of what is provided on an eviction record in one of our reports.

Here’s a quick rundown of each item.

  • State – The state where the eviction took place
  • Country – The county where the eviction took place
  • Case Type – Forcible Entry/Detainer is the legal wording for an eviction
  • Plaintiff – Typically the landlord, apartment complex or property manager
  • Judgment Amount – If left blank there could be no judgment amount but if rent is owed this could end up here
  • Action Date: The date the eviction was processed in court
  • Name – The person’s name that was evicted
  • Address – The address they were evicted from

Previous rental history is a good indicator of how a renter will be in the future.

That is why eviction history is one of the most telling items on a background report.

TransUnion did a study where they analyzed records from nearly 200 properties comparing tenants who were evicted to those who were not evicted.

Eviction History Search for Rental Background Check

Applicant A will represent the tenants who were evicted while Applicant B represents those who were not evicted.

They found that 21.7% of the evicted tenants had a prior eviction on record whereas only 5.5% of the non-evicted group B had a previous eviction.

What does this data mean?

It means that if your tenant applicant has an eviction on record, they’re much more likely to be evicted again.

Going through a second eviction is like the second time through a haunted house.

The fear of the unknown has been removed, and this is why you should be scared of someone who has an eviction on record.

They’re not going to be scared to go through another eviction.

Criminal Records

Background Check Criminal Records

The ways criminal records are to be considered is changing in many areas. It’s important to check your local laws to make sure there aren’t additional considerations placed in your area.

We covered this in detail on the tenant screening criteria page in that you should no longer use a blanket criminal policy with your rentals.

However, criminal records are permissible screening tools if you can create a nexus (fancy word for connection) between a criminal record and why someone wouldn’t be a good renter.

When you order a rental background check the data gathered from criminal records comes from courts all over the country.

With our SmartMove reports, there are over 200 million records searched at the State and Federal level.

A background check will gather all available criminal data that is reportable.

A criminal record is reportable for up to 7 years under the rules of the FCRA.

A criminal conviction is reportable indefinitely.

Difference Between An Arrest And Conviction?

Arrested – This states you were taken into custody but doesn’t necessarily mean you were convicted.

Charged – This is the next step where the prosecutor’s office will make a decision whether to charge you. This states criminal charges you are facing.

Convicted – The person has been proven or declared guilty of the offense.

Sentenced – This is when a formal judgment is issued that spells out the punishment.

Why Does The Type Of Criminal Record Matter?

HUD spells it out clearly that you should not deny an applicant based solely on an arrest without conviction.

“A housing provider who denies housing to persons on the basis of arrests not resulting in a conviction cannot prove that the exclusion actually assists in protecting the resident safety and/or property.”

This 10 page HUD document boils down to two paragraphs in the conclusion.

“Policies that exclude persons based on criminal history must be tailored to serve the housing provider’s substantial, legitimate, nondiscriminatory interest and take into consideration such factors as the type of the crime and the length of the time since conviction. Where a policy or practice excludes individuals with only certain types of convictions, a housing provider will still bear the burden of proving that any discriminatory effect caused by such policy or practice is justified. Such a determination must be made on a case-by-case basis.”

Basically, if you’re going to use a criminal record in your screening you must make a viable case for why that crime jeopardizes the resident safety and/or property.

AKAs

AKAs background report

AKAs stands for “also know as” a maiden name is the most common example of an AKA.

If your applicant’s name is “Michael Smith” an AKA can be listed as “Mike Smith.”

In the criminal sense, if the person committed a crime under a known alias (or pseudonym), that alias would show up under this section.

Some people have a known alias that acts as a nickname while others have gone through the legal steps to change their name.

Here’s a list of famous athletes that would most likely have an AKA show up on their background check.

  • Babe Ruth (George Herman Ruth, Jr.)
  • Bubba Watson (Gerry Lester Watson, Jr.)
  • Chad Ochocinco (Chad Javon Johnson)
  • Dabo Swinney (William Christopher Swinney)
  • Karim Abdul-Jabbar (Sharmon Shah)
  • Spud Webb (Anthony Jerome Webb)

Fraud Indicators

Fraud indicators SmartMove report

These are warnings of potential fraud listed on a background report.

On the SmartMove report, the applicant fills out their personal details, address history, and income.

If the inputted data looks suspicious, it will trip a fraud indicator.

This extra line of protection will point out suspicious behavior that the landlord can pay closer attention to.