Disclaimer: This article is not legal advice. Any legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so you should consult an attorney if you’d like advice on your interpretation of this information or its accuracy. You may not rely on this article as legal advice, nor as an endorsement of any particular legal understanding.
A credit report is a valuable tool in evaluating a person in the process of making a large purchase or signing a long-term contract such as a rental lease. Private persons often guard their credit history closely as well as monitor this report in an effort to obtain the best rates and smoothest transactions when obtaining automobiles and property.
While it’s generally known that a good credit report will be required for real estate transactions, what is lesser known is exactly who is allowed to view that report and how they are allowed to use the information. Learn more about legally obtaining a credit report in real estate.
Leasing agent vs buying agent vs. selling agent
How a real estate agent can legally obtain a credit report depends in a large part on how they are acting with the potential client. An agent may be acting on behalf of a property buyer, a property seller, or as the agent of a landlord. Each situation is somewhat different as to what is and isn’t allowed.
Buying agent and credit report uses
In general, a buyer’s agent will not need their own copy of a credit report. A buyer will generally direct their client to a licensed and experienced mortgage broker, who will be obtaining these details under a secure connection and contract. The agent will then produce a pre-approval letter for the buyer’s agent to use in the purchase of the desired home or property when they make this offer.
Instead of obtaining a full credit report of the client, a buyer’s agent will typically be more interested in knowing the client’s buying power such as available earnest money, down payment, or home selling contingency. The buying agent does not need a credit report of their own.
If a buyer is having trouble obtaining a lending pre approval, an agent may ask some friendly inquiries to help gauge the situation and refer the buyer to experts who may be able to find more creative financing offers. Any information provided in this circumstance is entirely voluntary.
Selling agent and credit report uses
Selling agents do not need the credit reports of the listing parties. Like buying agents, selling agents also need information from a lender. Some buyers may try to begin with a prequalification, which provides an estimate of buying power but may not require the purchaser to create a hard credit inquiry.
It is the selling agent’s job to know the difference between a pre-qualification and a full mortgage pre-approval, which means the purchaser’s credit report, as well as assets, have been vetted by a lender.
Leasing agent and credit report uses
Leasing agents, sometimes called rental agents, are the exception to the rule of whether a real estate agent can and should get a consumer’s credit report. Checking credit is now a standard in almost all rental applications. Landlords can set the standards that they choose to accept or standards that require either a higher rent or higher deposit. While landlords may adjust rental criteria based on credit, all applicants must go through the same credit screening criteria.
In order to legally obtain a credit report, a real estate agent or leasing employee must first obtain a) permission to run this credit report and b) personal identification information required to get an accurate report. This permission is typically obtained in writing, often in the application to rent itself. When gaining consent to run credit, the leasing agent must also detail any credit check fees that may apply in accordance with local state law (usually $30 to $50) and how those fees will be used including for employee time and labor to manage this process. Credit report or credit check fees may not be used for other purposes as dictated by the Fair Credit Reporting Act. For this reason, it is important for both parties to fully review all the fine print before entering into a lease agreement.
In some cases and locations, a tenant may ask to provide their own credit report in order to minimize fees and hard inquiries. This is less common than the above process.
If a landlord uses a legally obtained credit report to set a higher rate or deny an applicant, commonly called an adverse action, they must provide specific information to the applicant. If an adverse action occurs due to credit score, the applicant must be informed of the agency the score or report has been generated from (Experian, Equifax, or Transunion) and the address and contact information of that agency. The tenant then has a right to request review and correction of any facts that may be in error, and to obtain a free copy of the credit report directly from that agency for themselves if requested within 60 days. If the report was in error, a landlord may and should reconsider the corrected application, but this is only helpful for both parties if there is still an open unit at the time of this correction, of course.
Once creditworthiness has been determined, it is not legal for a landlord to keep an applicant’s data beyond what is needed to track an application. Called the “Disposal Law”, a leasing agent must get rid of your personal, consumer-reported data after the review period is over. This data may not be sold or shown to any party not affiliated with the original contract.
Avoiding discrimination in real estate credit reports
Credit reports may be used by real estate agents to determine risk and ability to pay an agreed-upon rent. Credit reports may not be used to set standards based on race, gender, ability, or any other factor that unfairly discriminates against a specific group of people. All tenants must be treated equally throughout the application process. Rental agents may not create uneven standards of rental rates, pet policies, vacancies, or credit scores
So when can a real estate agent legally obtain a credit report of a client? When that agent is acting in a leasing capacity and with an applicant’s explicit permission.