You’ve found some ideal tenants to rent your buy-to-let property. But before you give them the keys, you’ll want to complete a thorough credit check on them.

As landlord, you almost certainly know you should be carrying out a credit check but what actually is it?

From a general background check to their actual credit score, there’s no harm in gathering as much information as possible on your new tenants to give you the assurance you need to maintain high tenant retention and to eliminate any income interruptions.

What is a tenant credit check?

The tenant credit check takes into account income, debts, issues paying bills, consistent payment of credit (such as credit card payments) and loans you have and are paying back. The credit check helps build a picture of the overall financial risk of the prospective tenant.

You will have to ask the permission of the prospective tenant to run a credit check on them. This permission should be granted in writing (an email is adequate).

Once they have granted you permission to do so you can run the check through one of these three reliable credit bureaux giants; Experian, Equifax, or TransUnion.

How long does a credit check take?

Within minutes you’ll have the results of the credit check. The slightly longer process you’ll have to go through is carrying out a full tenants screening which shouldn’t take longer than 2-3 days.

Should you run a credit check on tenants who are renting?

Yes. All tenants residing in your rental property should undergo a credit check. In hand with your credit checking, you’ll want to have a strong screening process and your landlord’s insurance in place before you get any tenant to sign on the dotted line.

Your tenant screening process will:

• Check if your tenants are financially responsible

You won’t want any income interference from your rental business. Making sure your tenants can afford the rent is essential research.

• Protect your tenants from other tenants

Making sure there are no dangerous persons entering the tenancy. Although not compulsory, you can run a DBS check if you wish.

• Helps increase tenant retention

If you’re able to reduce the turnover of tenants you’ll be able to save time and money scouting for prospective tenants. Marketing and refurbishment costs can add to your overheads especially if you’re looking to tidy up any wear and tear before a new tenancy.

• Protecting your asset 

You’ll want to know the types of characters you’re trusting with your asset. If your tenant has rented before, it’s not uncommon for you to ask for a landlord reference to just double check the previous AST was left on good terms.

What should you look for on a tenant credit check?

As a rule of thumb, landlords should look for a credit score of around 620 or higher. You’ll hope your new tenants will be honest with you about their financial situation, but there’s no stretching the truth when it comes to a credit score.

There’s no hard and fast rule to this score as there may be some determining factors such as people moving back from another country or tenants being able to foot six months worth of rent in one go. Ultimately, it’s up to you but you can explore CIA’s advice centre to take a closer look at the screening process which will protect you in the long run.

You also want to keep an eye out for CCJ’s (county court judgements) for outstanding debt. These are issued if the tenant still owes someone money. Records of judgement are held for six years so more likely than not, you’ll be able to see if your tenant has got caught up in such activity.

A good way of calculating if a tenant can afford your property’s rent is checking their income after tax is a minimum of 2.5 times the annual rent.

Would you like to speak to one of our expert team and arrange your landlord’s insurance policy? Request a call back with CIA today.

Tenants with a bad credit rating

Although a bad credit rating is not particularly attractive to you as a landlord, there are commonly used practices such as securing a reliable guarantor to harbour any financial risk.

If you’re sliding into the student property market, it is highly advised that all tenants on the agreement make sure they provide a guarantor. Students, although some will come with assured housing loans, may also find it difficult to manage their finances if it is their first time away from home.

You’re more than entitled to run a credit check on the guarantor as well. In fact, this is heavily advised. Taking out a good insurance policy will also cover you over loss of rent.

What makes a good tenant

Gaining as much information as possible from your tenants will give you a good idea of how the tenancy will run. Establishing a good relationship with your new tenants can prove massively beneficial not just from a financial perspective but from a communicative point of view throughout the AST agreement.

Questions to ask your tenant

1. What’s your current work situation?
2. Do you have any plans to move next year for work?
3. Are you looking to change your job any time soon?

Remember it is illegal to discriminate against your tenant on the basis of ‘protected characteristics’ such as gender, race, sexuality or religion but general questions about their future work plans are perfectly fine. In hand with general research, the credit score is a really useful tool to give you good footing at the start of the tenancy.

With CIA Landlords, you can compare landlord insurance to find the best deal for your needs. If you need help finding the right policy for you, get in touch with one of our expert brokers to get a quote.