A contract of lease is an agreement between a lessor/landlord and the lessee/tenant whereby the former agrees to rent out his or her property for a fee and subject to a contract of lease while the latter agrees to pay regular amounts as rent for the continued use of the same property for a specific period of time. Finding the perfect tenant is not what this article is after, rather this article will endeavor to provide a lessor with enough information and to lower the risk of renting out property to a deadbeat.
Credit Check for Landlords: Credit Inquiry Defined
A landlord credit check is a request made by a person interested about the credit report and rating of another person (natural or juridical) for a specific legal purpose and with a written authorization to do so. Remember, not just anyone can request a landlord credit check from credit reporting agencies. The request must be accompanied by a written authorization and the person or entity requesting has to state the purpose for the credit inquiry as a tenant credit check. The reason for this is because the law limits credit inquiries to protect the financial information of the natural or juridical person.
Credit Check for Landlords: Credit Reporting Agencies
These are private corporations operated for a profit. There are three or four major credit reporting agencies in the United States. The important thing to remember is that while it is safe to request a credit report and credit score from one credit reporting agency, it would be wise to get 2 or 3 different reports from the major reporting agencies. This is because each credit report may not contain the same information and may not contain the same forms.
Credit Check for Landlords: The Credit Score
A credit score is the numerical equivalent of a natural or juridical person as a risk. In theory the higher the credit score the lower the risk of default and the lower the credit score the higher the risk of default. There is no hard and fast rule here however most lessors look for the:
- Federal and state median credit score: At the very least a tenant should be within the median credit score.
- Previous lease defaults: Defaults on previous leases is indicative of a propensity to not pay rent on time.
- Total amount of indebtedness: This shows the landlord if the potential lessee still has the capacity to pay the rent.
Remember, the lower the score the lower the bargaining power of the tenant. This also means the landlord is justified in charging more rent per month or on requiring a security deposit and advance deposit. The landlord should also insist on post-dated checks for the entire length of the contract because these allow the landlord to strictly enforce payment under threat of litigation.
Last Minute Tips
Aside from the landlord credit check, a landlord also has other means by which to get a better picture of a potential tenant. These other methods comprise of a more extensive inquiry of the potential tenant. These inquiries are easily available online for a fee and may comprise of the following:
- Criminal record check
- Pending medical collection check
- Employment summary check
- Alias check
- Past address history check