Credit Reports

Credit reports have become an integral part of business in America. Credit reporting agencies have, historically, used secret criteria to determine credit worthiness. However, the information provided to a business requestor may be straight forward. A credit report on a prospective tenant may list the credit accounts, delinquencies, if any, total indebtedness, and any credit arrangements that were settled by a court or, in some cases, those which are pending before a court. The credit reports do not reveal why the entries on the report are listed as they are. Circumstances that led to a delinquency, for example, are not given.

When you add the prospective tenant's debt payments to the rent amount and compare that to the income given on the rental application, you can make a judgement about the advisability of renting to the tenant. Sometimes the data do not offer an easy decision. In those cases, other non-credit information about the prospective tenant is useful as is the apartment manager's ability to judge character.

The author once, long ago, worked briefly for a credit agency. In that bygone era, if a merchant wanted to sell on credit, the merchant requested a credit report on the prospective customer. The credit company's agent interviewed the prospective customer's former school teachers, employer, neighbors, co-workers, and even religious leaders. The result was a character report. If the prospective customer appeared to be trustworthy, the merchant could have the confidence that the debt would be paid regardless of any unforeseen hardship that might befall the debtor. If, for example, the debtor lost a job, the merchant could have confidence that the debtor would quickly find another job and pay the debt. Times have changed. Contemporary credit reports do not address character; they only reveal some information about credit history. There are valid reasons for the change. Today, a person may lose a job because a company or even an entire industry has been transferred off-shore. Because it can be difficult to acquire new job skills, the person who lost the job may be unemployed or underemployed for a long time. Good intentions will matter little; debts may remain unpaid. Secondly, the cost of character reports would be considered prohibitive today.

Some apartment management companies evaluate credit reports at a central office and the apartment manager has no role in the process. Some companies use a point system to evaluate credit reports assigning a number of points for each entry and totaling the points to determine whether to accept the prospective tenant. All systems have some limitations. It is advisable to obtain as much non-credit information as may be legally and reasonably feasible because a credit report is never a complete portrayal of a person. Rental applications are a major source of additional information including employment, which should be verified, and previous address.

Some apartment management companies utilize a criminal records search in addition to requiring a credit report as a means of screening prospective tenants. Screening of criminal records can be local jurisdiction only, or state-wide, or national. There is a cost for obtaining criminal records information and credit report information, but preventing problems is usually less costly than dealing with problems.

Criminal records are public records. You must, however, have the prospective tenant's written permission to obtain a credit report. Credit information is private information and must be safeguarded once obtained. You should obtain a credit report for each adult who will be living in an apartment and each of those persons must give written consent. If a third party will be responsible for the rent payment, you must obtain a credit report on the third party as well as all adults living in the apartment. All credit report consent signatures should be witnessed by an agent of the apartment management company or, if signed in absentia, by a notary public. The credit report, when obtained, must be treated as a confidential document. It must not be shown to any unauthorized person. It should not be shown to the prospective tenant. A prospective tenant is entitled to obtain a copy of the credit report directly from the credit reporting agency.

If it is necessary to refuse to rent to a prospective tenant because of adverse credit history, that refusal must be worded carefully. It should be a general declination, not in specific terms. It may be advisable to ask the company's legal staff to draft a refusal letter. A prospective tenant who is displeased because of a refusal based on credit history has a right to pursue the matter with the credit reporting agency. It is inevitable that errors will occur in the credit evaluation and reporting process. That is unfortunate. We are fallible.

Some employers require a transcript of college credits when considering a job applicant. Some job seekers carry a copy of that transcript. But employers do not accept the job applicant's copy. To ensure validity the employer obtains a copy directly from the academic institution. The same type of thinking applies to credit reports. You should not accept a credit report presented to you by a prospective tenant. To ensure validity the report must be obtained directly from the credit reporting agency.