Credit Checks for Renters

Using credit checks for renters is an integral part of assessing the financial reliability of potential tenants. Landlords can perform a credit check for potential tenants to determine whether they can afford to pay rent.  

We’ll provide information and guidance on the use of credit checks in the rental process and explore what landlords need to look out for on credit checks as well as the benefits and potential drawbacks of performing a credit check for renting a house.

What is a credit check for renters?

Landlords can choose to credit-check potential tenants as part of the tenant screening process to see if they might have had any difficulty paying their rent previously. Before completing a credit check, you must seek permission from your prospective tenant. 

While there is no minimum score required, landlords may choose to set their own minimum score to protect their rental income and investment. As a general rule of thumb, most landlords look for a score of 620 or above. There are also different types of credit checks that you can perform. A tenant credit check is known as a soft credit check, which means that it won’t impact the tenant’s credit score. 

What do landlords check on credit checks? 

Landlords should look out for the following when performing a credit check for renters:

• Electoral status: This helps you to verify that the tenant is who they say they are and the information provided by the tenant is correct.

• History of CCJs: This indicates whether the tenant has had debt in the last six years.

• History of Insolvencies: Again, this can indicate substantial risk for a landlord that the tenant is unable to pay their debt, and it also stays on record for six years.

It’s important to look out for this information and consider it carefully when choosing the right tenant for your rental property. Although you can’t see late rent payments or missed rent payments, it can tell you whether your prospective tenant has any financial risk associated with them, as well as if they are providing you with the right details. Remember, it is a landlord’s responsibility to carry out right-to-rent checks and make sure the information they have is correct when renting out their property.

Benefits of performing a credit check for renters 

Incorporating credit checks for renters as part of the tenant screening process can be an effective way to mitigate risk for you and your rental business. Here are some of the key benefits of conducting a credit check when renting a house: 

• Identify financial risks: Check whether your prospective tenant has any CCJs or insolvencies on their record.

• Verify tenant’s identity: Ensure the tenant’s identity matches the information they have provided.

• Mitigate risk: Prevent missed or late payments by ensuring your tenant doesn’t have any unresolved debt.

• Prevent eviction: Reduce the chance of evicting a tenant who can’t keep up with rent payments. 

Ultimately, carrying out a credit check on prospective tenants has many benefits for landlords. However, it is also important to consider the potential drawbacks of doing this as well.

Potential drawbacks of credit checks 

Despite the many benefits of conducting credit checks for renters, there are also a few potential drawbacks that you will have to consider to make sure it’s the right choice for you and your tenants. Here are some of the drawbacks:

• Incomplete information: Credit checks don’t show missed or late payment information of tenants.

• Not registered to vote: If your tenant has not registered to vote, they might not appear on a soft credit check. This could be the case for student tenants.

• Impacting tenant relations: Some tenants might not agree to perform the credit check. You could risk isolating potential tenants and making the process of finding a tenant longer.

Weighing these drawbacks is important when deciding whether it’s the right choice for you and your tenants.

Alternatives to credit checks 

If you aren’t sure whether performing a credit check for renting a house is the right option for you, there are alternatives to consider. Some of the alternatives include:

• Rental history verification: Get references from the tenant’s previous landlords to check for their rental history.

• Income verification: This is proof of income to check your tenant can afford the rent.

• Proof of identity: You can ask for proof of identity via a passport or driving licence.

• Guarantors: A common choice for students, someone agrees to pay rent if the tenant can’t.

• Advance rent: You could ask for a rent advance. 

These alternatives could be a better choice for you and your tenants. It’s important to use credit checks responsibly and ensure you carefully consider each method of checking a tenant’s financial situation before making a decision on conducting a credit check for renters.

To give you further peace of mind, get affordable landlord insurance from CIA Landlord Insurance.  It can help protect you and your investment in unforeseen circumstances. Get in touch with us or get a quote and protect your property today.