How to Read a Renter's Credit Report

Landlords and property managers may not be credit financing experts, but a part of the job description requires them to become quite familiar with reading renter credit reports.

Reading credit reports is an essential part of the tenant screening process. The information on an individual’s credit report will help you determine whether the rental applicant will make a good tenant in the long run.

There are tons of important details on a credit report, so it can be challenging to know where to start. Luckily, we’ve got you covered.

Here’s everything you need to know about how to read a renter’s credit report. Let’s get started.

What is a Credit Report?

A credit report is a document that details an individual’s financial and credit history. In the rental industry, landlords and property managers use credit reports to assess a prospect’s financial standing and whether their financial situation indicates that they will be a compatible match for the vacant unit.

Credit reports are provided through one of the three major credit bureaus: Equifax, Experian, and TransUnion. These aren’t the only credit bureaus, but they are the most commonly used and most reliable.

Unfortunately, the credit bureaus may report different scores for a single individual. In some cases, credit scores can vary, giving you an inaccurate assessment of an individual’s actual creditworthiness and financial status.

That’s why it’s crucial to understand and review all the information included in a prospect’s credit report and not rely on credit scores alone.

To help you get started, here’s a brief breakdown of the information you’ll find on a credit report.

• Identifying Information: This will include basic information, such as the applicant’s name, current address, date of birth, social security number, and more available through public records.
• Inquiries: Credit inquiries come in two forms: hard inquiries or soft inquiries. Hard credit inquiries are those that have an impact on an individual’s credit report, whereas a soft inquiry does not have an impact on an individual’s credit report. If an applicant has applied for multiple credit lines or loans in a short period, the activity may harm their credit score.
• Credit Account Information: Any credit or line-of-debt accounts will show up in this section, including credit cards, car loans, mortgages, student loans, and more. The report will also show a detailed payment history for each account.
• Negative Financial History: If an individual has experienced foreclosures, filed for bankruptcy, or has any charge-offs throughout their financial history, that information will appear in this section of the credit report.

Understanding this information and its implications is the key to determining whether a tenant meets your financial standards for renting.

Keep in mind that if you deny a prospect based on the information found in their credit report, the Fair Credit Reporting Act dictates that you must notify the prospect of the reason for their denial.

How to Read a Credit Report

Reading a credit report can be challenging. With a myriad of information, they can be difficult to understand if you’re unfamiliar with credit reporting terms.

The following list will provide a walkthrough of an applicant’s credit report and what you need to review on their credit report.

Verify Basic Information

Credit reports display personal identification information, including a prospect’s name, address, date of birth, social security number, and employment information. Be sure to confirm that this information is consistent with any identifying information the prospect has provided on their application.

You want to ensure that their name is spelled correctly and remains consistent throughout the report. If you notice any inaccuracies, you can follow up with them. For example, a recent move or name change due to marriage may not be updated on their credit report yet.

Focus on the Credit Score

A credit score is an assessment of an individual’s financial history that outlines how they have managed lines of credit or loans.

Credit scores are expressed as a number that ranges from 300-850, with the range below 629 generally considered poor credit.

Reading a tenant’s credit score is very straightforward. Most landlords and property managers set their minimum credit score required to rent an apartment at 650, but that number can vary greatly depending on location and the type of unit.

That said, anything above 650 is generally considered good credit, while anything above 750 is considered excellent.

However, it’s important to note that while credit scores are meant to provide a clear evaluation of an individual’s credit history, they very rarely tell the full story.

You’ll need to dive deeper into a prospect’s credit report to gain a more accurate understanding.

Look Each Credit Factor

Five primary credit factors influence an individual’s calculated credit score. Some credit factors may be weighted more heavily than others, but each factor should be assessed when trying to build a full picture of a prospect’s financial situation.

Here’s a brief rundown of the five credit factors and how they are determined.

• Credit Utilization: Credit utilization is one of the most heavily weighted factors used to determine a credit score. An applicant’s credit utilization ratio is expressed as a percentage that represents the total credit used with a single or combined credit line. A credit utilization rate over 30% will usually harm an individual’s credit score.
• Payment History: Even applicants with high credit utilization rates can have relatively high credit scores if they have a history of on-time payments. Missed or late payments can harm an individual’s credit score.
• Credit Mix/Variety: Though not a major factor in determining one’s creditworthiness, an individual’s credit or loan variety can have a positive or negative impact on their score.
• New Credit Lines: New credit lines typically result in hard inquiries. If a prospect has opened a new credit line or has had several recent hard inquiries, they may have experienced a recent drop in their credit score.
• Credit Age: Generally, the older your credit lines are, the higher your score will be. Credit scores are like fine wine in that way. If they age well (consistent, on-time payments), they’re better in the long run.

Examine Tradelines

“Tradeline” is a credit reporting term used to describe credit accounts. Each account is represented as an individual tradeline with information related to the creditor and other relevant information, such as the amount owed and the total credit line.

You can use this information to assess a prospect’s overall credit and debt. You can also determine whether they have racked up a ton of credit debt or have their debt spread out over different credit account types, such as student loans or car loans.

Review Accounts and Balances

Credit reports will show an applicant’s various credit accounts and balances. This information is very straightforward and should be used to assess a prospect’s total balance.

Credit accounts fall typically fall into three categories:

• Revolving Credit: Revolving credit is a credit line that can be spent from up to a limit and must be paid for, at least in part, each month to avoid interest fees. Credit cards are one of the most common examples of this kind of credit.
• Installment Credit: Installment credit is a loan with a set repayment schedule, such as a mortgage, student loan, or car loan.
• Open Credit: An open credit account can be spent from up to a certain amount, but must be paid back in full at the end of each month. These accounts aren’t common but are typically associated with charge accounts.

Each kind of account should be considered when assessing a prospect. However, you shouldn’t use this information to determine how much cash and other assets a prospect has because credit reports don’t list checking and savings accounts.

Understand Payment History

Payment history is indicated with each account, alongside a notice as to whether the account is still in good standing or delinquent.

When reviewing payment history, it’s a good idea to look for outliers, like missed or late payments. If a prospect has few or no payment missteps, it’s a good sign that they make a habit of paying their debts.

It’s also a sign that the prospect may be more inclined to pay their rent on time, too.

How Can You Find a Good Tenant

Knowing how to find a good tenant starts and ends with your tenant screening process.

Putting in the effort to determine whether a tenant seems likely to make timely rent payments, respect your property, and act as a good neighbor will save you quite a few headaches in the long run and can help protect your income.

Good tenants usually have some or all of the following characteristics:

• A Steady Income
• A Proven History of Making Payments On-Time
• Verifiable Positive Landlord References
• Verifiable Positive Personal References
• No History of Inter-tenant Conflicts
• No History of Property Damage
• A Reliable Communicator

Simply doing the work to find a tenant that fits your criteria for a good tenant exponentially increases your chances of actually finding one!

Final Thoughts

Now that you have all the information you need to help you vet rental applicants based on their credit reports, you can list your rental units with confidence.

Of course, the first step to finding a great tenant is listing your apartment.

If you want to get highly interested prospective tenants delivered right to you, then listing your unit on Apartment List is the way to go.

Our platform matches prospective tenants with apartments that meet their needs and preferences, meaning that the only prospects you hear from are very interested in renting your unit.

In short, we do all the legwork when it comes to helping you get in touch with prospects who have a high chance of signing a lease agreement with you.

Interested? List with us.