How to run background checks on tenants

Finding the right tenant for a rental property involves many factors. One of those is reviewing the background of the candidate, including criminal, credit, and rental history and income verification. Learning how to run a background check on tenants requires interpreting results, compliance with laws, and best practices.

The time, expense, paperwork and follow-up required to run a background check can be daunting. To find the best renters, a tenant background check is an essential part of the application process you can’t afford to skip.

Although you don’t legally have to conduct one, performing a background check lets you make more informed decisions about which tenants to welcome and which to weed out. Here’s everything you need to know about why it’s important, what things to look for, and how to run a background check on a potential tenant.

What is a background check, and why is it important?

A tenant background check is a comprehensive review of a person’s legal and financial past. It includes:

• Criminal history
• Rental history
• Credit history
• Income verification

When you conduct a background check, you can verify that an applicant is who they say they are. This can reduce the risk of criminal activity and even evictions and protect the property, other tenants, and neighbors.

This process also gives you a good understanding of whether a renter is responsible and financially secure to pay the rent on time and in full every month.

Lastly, background checks can shield you from potential lawsuits, costly disputes, and becoming a victim of rental scams. Rental scams have spiked significantly, with 70% of landlords noting an increase in fraudulent rental applications.

How long does it take to get results?

The time to receive results depends on the type of check. Credit is instant, but eviction history and criminal background checks can take longer.

For eviction history, most results are instant. However, some require extra vetting, which could take an additional hour.

For criminal background checks, most reports return within five minutes. For possible hits, a double-check may be necessary to confirm, and those are typically available the same day.

To ensure you receive a quick turnaround and accurate information, a powerful tenant screening platform that integrates with many up-to-date information sources. Credit, criminal records, and eviction history queries pull data from reliable, vetted sources.

Income verification can be more time-consuming, depending on the methods. Historically, potential renters would provide paper documentation like bank statements or pay stubs. A new, faster option works by consumers securely connecting their bank account as part of the application. Then, the report generates a summary of deposits.

What to look for in a tenant background check

In exploring how to run a background check on someone, you’ll need to know what to look for in the different sections of a background check. This knowledge can help you spot red flags.

Here’s what you should pay attention to:

Rental history

Look for a consistent history of on-time rent payments, responsible property maintenance, and positive interactions with previous landlords. If you notice any past evictions, landlord complaints, or a record of a broken lease, investigate further or move on to the next applicant instead.

Credit history

An applicant's credit history reveals important details such as:

• Credit score
• Payment history
• Outstanding debts
• Past bankruptcies or delinquencies

A tenant with a strong credit history will likely be responsible and pay rent on time. Someone with a poor credit history may not be as reliable.

Criminal history

Almost77 million Americans have a criminal record. As a result, a criminal background check should be part of your due diligence. It can uncover any potential safety risks and reveal convictions or arrests.

Having a criminal history isn’t an automatic disqualification. You should consider the nature and severity of the offense as well as how long ago it occurred. It will assist you with determining the risk factor of the individual.

If you decide to disqualify a tenant based on their criminal history, you must ultimately follow local, state, and fair housing laws.

Employment history

More than 80% of landlords have discovered falsified pay stubs, employment references, and income details by applicants. Watch out for discrepancies between the information provided by the applicant and employment verification records. Inconsistencies, gaps in employment dates, or frequent job changes are good reasons to proceed with caution.

How to run a background check on a tenant

Learn how to run a background check using these steps.

1. Get signed consent

Under federal law, you must obtain written consent from an applicant before running a background check. You can include a consent form in the application or have applicants sign a separate form.

Regardless of how you request their permission, the form should explicitly state the scope of the background check. Language should include all relevant information necessary for tenant screening, including criminal history, eviction records, and credit reports. For transparency reasons, it should provide details about the applicant's rights in the process.

2. Gather necessary information from the applicant

Once you have the applicant's written consent, collect additional details required to perform the screening. While you can choose what information to collect, a thorough rental application should include:

• The tenant's full name
• Social Security number
• Date of birth
• Current address

You can also ask about their employment and financial status to gauge whether or not they will be able to afford the rent.

3. Choose a reliable screening service

When screening tenants, look for screening services approved by the Federal Trade Commission (FTC) and other trustworthy agencies. To find a reliable service, read Google Reviews or TrustRadius reviews, ask your network of real estate professionals what services they use, and compare different options.

In assessing options, look at the sources they use to screen, how easy the technology is to use, and its data security safeguards.

4. Incorporate a credit check into the background screening process

In addition to running a background check, a credit check can reveal any financial red flags. A credit check runs through one of the three major credit bureaus: TransUnion, Equifax, or Experian.

The report gives insight into financial responsibility with details on their past payment behavior, outstanding debts, and creditworthiness.

5. Check references

Consider both screening services and reference checks. Conducting these can help validate tenant-provided information. Contacting references is another way to mitigate the risk of rental fraud and minimize potential liabilities. To confirm the tenant’s rental and employment history, you can call their previous landlords or employers.

Best practices for handling background check data

Another essential element of how to run background checks on tenants involves handling the data. It’s sensitive, confidential, and protected. You need to comply with all applicable laws and regulations to ensure the security of the data.

When using a compliant tenant screening platform, it will have all the necessary safeguards for data protection with advanced security protocols. Some best practices beyond this are:

• Storing data securely, which involves both digital and physical options
• Ensuring there’s no unauthorized access to your account
• Properly destroying or storing any printed reports that have PII (personally identifiable information)
• Maintaining confidentiality regarding the information by not sharing it with other parties
• Following any rules and regulations relating to adverse action associated with background check data

By following these best practices, you can ensure data security. While you are not responsible for sharing the results—since the applicant will receive a copy—you may choose to disclose any information that could prevent the process from moving forward, though it is not required. Here are some tips:

Address any discrepancies between the tenant’s application and background check. Give them the option to explain, but don’t dismiss the findings, as they are fact-based.

• Be concise and clear about the information revealed.
• Ensure that there are no discriminatory policies in the decision-making process.
• Explain, if applicable, why things found during the screen impacted your decision not to accept the applicant.
• Deliver an adverse action summary with the reason for denial.
• Provide a dispute process so the individual understands their rights of recourse.

How to interpret the results of tenant background checks

When considering how to run a background check on a potential tenant, you need to ensure consistency in interpretation as documented in the Fair Housing Act and guidance from the Department of Housing and Urban Development (HUD). These rules mean that you should screen every tenant. Standardizing how you review results is crucial, as well.

Let’s review some ways to analyze results.

An applicant with a criminal history

You must follow fair housing guidelines for this evaluation. Carefully consider these components:

• How long ago the incident occurred: Criminal reports show records from the last 7 years. However, if it was recent, it could be a red flag.
• The severity of the crime: Was it a misdemeanor or a felony? Did it include violent acts or simply a minor transgression?
• Frequency of arrests: Has the tenant had multiple arrests?
• Legal restrictions for some crimes: Some felons have specific offenses that dictate their life after release. For example, some registered sex offenders may need to live a certain distance away from schools or parks.

Even with guidance from agencies, you may still have questions. You can always seek advice from legal counsel.

An applicant with a volatile credit history or financial instability

Should your check reveal a low credit score, bankruptcy, or other financial concerns, you may determine they are not a good fit. A credit score beyond your accepted threshold is often a signal to move on from the tenant.

The rent-to-income ratio is another contributor to financial stability. It calculates the percentage of someone’s total income that goes toward rent. Determine the rent-to-income ratio by dividing the monthly rent by the tenant's gross monthly income and multiplying by 100. A good rule of thumb is that it shouldn’t exceed 30%.

If over 30%, it’s an indicator that there could be cause for concern about the person being able to pay rent on time and in full each month.

An applicant with previous evictions

Again, this is an automatic disqualification, especially if the account was many years in the past. However, you must weigh if this is a pattern and likely to recur. In addition to legal records, you could also contact previous landlords for more context.

Relevant laws about background checks all landlords should know

Part of how to run a background check on tenants is following regulations.

As a landlord, you must be well-versed in tenant screening laws. Failure to comply with them could result in fines or civil liabilities. Be aware of these laws, and be sure to note any updates or changes.

Fair Credit Reporting Act (FCRA)

The FCRA regulates how consumer reporting agencies handle and report consumers' personal information. When obtaining background checks on tenants, you must comply with FCRA guidelines to ensure accuracy, fairness, and privacy protection.

Fair Housing Act (FHA)

According to the FHA, it is illegal to discriminate against an applicant based on race, color, religion, sex, national origin, familial status, or disability in housing-related activities.

Americans with Disabilities Act (ADA)

The ADA prohibits discrimination against individuals with disabilities in employment, transportation, public accommodations, communications, and governmental activities. You must make reasonable accommodations for applicants with disabilities during the application process.

State and local laws

In addition to federal laws, state and local laws may impose additional requirements governing tenant background checks. These laws may include restrictions on the use of criminal history, limits on application fees, and requirements for providing applicants with adverse action notices.

Streamline your tenant background check process with RentSpree

Now that you know everything about how to run background checks on tenants, you’re ready to streamline the process. You can do that with RentSpree. Our solution includes a full online rental application, a TransUnion credit report, a criminal background check, a nationwide eviction report, and income verification.

Our tools simplify the screening process and empower you to make fast, confident decisions about your next renter.

We also automatically keep current and compliant so you don’t have to concern yourself with following the changes to screening laws. This is a service you would not get unless using a professional screening service.

Curious to see it in action? Reach out today.

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