Finding reliable tenants is essential for landlords to avoid the possible financial and emotional stress of dealing with non-payment or evictions, which can cost you money and lead to lengthy vacancy periods. A thorough credit check is one of the most effective ways to evaluate a prospective tenant’s financial reliability. Here’s what to look for:
1. Low Credit Score
A low credit score is often viewed as a red flag, but it’s important to not only rely on this number. A typical individual's credit score ranges from 300 to 900, and while scores below 600 may raise concerns, it’s essential to look at the full credit report. Some tenants may have a low score due to reasons like short credit history or previous financial mistakes. It is best to evaluate the reasons behind the score.
2. Late Payments
A credit report will show whether tenants have a history of paying their bills on time. If they frequently miss deadlines for credit card payments, utilities, or other financial obligations, they may struggle to pay rent on time. As a landlord, you want tenants who prioritize rent and other key responsibilities.
3. High Debt Load
Too much debt—whether it’s from student loans, credit cards, or other financial obligations—can hinder a tenants ability to pay rent. Landlords generally prefer tenants whose monthly income is at least three times the rental amount. In Canada, examining a tenant’s rent-to-income ratio is particularly important in high-rent markets, where housing costs can consume a significant portion of their earnings.
4. Derogatory Marks
Derogatory marks on a credit report, such as collections, bankruptcies, or car repossessions, indicate poor financial behavior. It’s not uncommon to find tenants who have undergone financial difficulties like bankruptcy, but be sure to investigate if they’ve since taken steps to recover.
5. Gaps in Payment History
A credit report usually spans several years of financial activity. Any unexplained gaps in payment history might suggest financial instability. Consistency is key in evaluating whether a tenant can reliably meet monthly rent payments.
6. Rental Payment Delinquencies
In some cases, a tenant’s rental history may appear on their credit report, especially if previous landlords reported delinquencies to credit bureaus. Consider also asking for a rental history report or contacting their previous landlords to verify their rental payment habits.
Landlords can request a credit check from national credit reporting agencies like Equifax and TransUnion - be sure to obtain written consent from the tenant before accessing their credit history.
A credit check is a valuable tool when selecting a tenant however, it’s only one part of the assessment. Be sure to also verify their employment, rental history, and references to get a clearer sense of their overall reliability. By combining these factors, you can reduce the risk of renting to someone who may default on payments, protecting both your property and your financial interests.
