What Separates Successful Landlords From the Ones Who Struggle
Do you want to know the difference between successful landlords and the ones who struggle?
It’s not the properties. It’s not the neighborhoods. And it’s not even the rental price.
It’s tenant screening.
And more specifically, whether a landlord chooses to run a rental application credit check before moving in a tenant.
Successful landlords know that screening means the difference between: reliable tenants, on time rent checks, and zero eviction fees.
Landlords who skip tenant screening end up with nothing but: late paying tenants, constant headaches, and huge fees.
What you’ll learn:
- Why Rental Application Credit Checks Are the Foundation of Smart Landlording
- What Rental Application Credit Checks REALLY Tell You
- The Biggest Rental Application Mistakes Landlords Make
- How to Build an Unbreakable Tenant Screening Process
Why Rental Application Credit Checks Are the Foundation of Smart Landlording
Picture this…
Every time a property is rented out, thousands of dollars of hard earned money — an income stream — are placed into the hands of a stranger.
Without taking the proper steps to verify that tenant first, any landlord is completely blind walking into that decision.
That’s why successful landlords start with a good rental application. Rental applications with rental credit checks lay everything out on the table — financially speaking — before anyone thinks about signing a lease.
Past rental payment history, outstanding debts, bankruptcies, collections, and overall credit score are all crystal clear on a credit report. These numbers paint an undeniable picture of financial responsibility (or irresponsibility).
About half of all tenants skip at least one monthly payment. Landlords who take the time to run a credit check will catch red flags before they ever agree to that lease. Landlords who don’t run tenant checks? They learn about these problems after it’s too late.
What Rental Application Credit Checks REALLY Tell You
Let’s dig into these credit reports a little further…
A credit check does more than spit out a FICO score. It uncovers patterns that show landlords whether or not a potential tenant has the financial foundation to pay rent every single month.
Here are some key factors to look for:
- Past Payment History — This is by far the biggest indicator. If a tenant has been paying their current debts late (or not at all) there’s a good chance they will pay rent late.
- Total Amount of Debt — High debt loads could indicate that a tenant is living beyond their means.
- Past Bankruptcies/Collections — These are huge red flags.
- Credit Score “Ranges” — Most landlords have a minimum credit score of 620. In highly competitive markets scores of 650-700+ may be needed to even be considered.
Okay but here’s the thing…
Yes, credit scores are important. But they don’t tell the full story. A 650 score who consistently paid every bill on time tells a better story than a 700 score who filed bankruptcy twice.
Monthly payment history tells you far more about someone’s financial habits than a single credit score. Learn to read the patterns. That’s how successful landlords protect themselves.
The Biggest Rental Application Mistakes Landlords Make
These are where bad landlords REALLY hurt themselves.
They Don’t Run a Credit Check. Some landlords take a chance on a “good feeling”. Some people are great at lying about their past. Especially if it isn’t verified independently.
They Accept Incomplete Applications. A rental credit check can’t be run if the applicant doesn’t include their employment history, prior addresses, birth date, or social security number. Bottom line: Incomplete applications equal leaks in the tenant screening process.
They Don’t Have a Credit Score Threshold. Every landlord should have a minimum FICO score they’re willing to accept. Every. Single. One. When landlords are inconsistent on this minimum they accidentally apply different criteria to different applicants. This leads to fair housing lawsuits.
They Don’t Verify Income Separately. A credit score can tell you how someone has handled their finances in the past. But if they don’t have a job or their current paycheck doesn’t cover rent… it doesn’t matter. Verify income with pay stubs, bank statements, or an employment letter.
They Skip Checking Rental History. Rent payments aren’t always on credit reports. Make sure to run an eviction history along with a credit check.
Yikes. That adds up to some serious fees for struggling landlords.
The tough part is that all of these mistakes are completely preventable. But they happen over and over again because too many landlords dive into tenant screening blindly.
How to Build an Unbreakable Tenant Screening Process
Ready for the formula that profitable landlords use, over and over again?
Step 1: Determine Your Minimum Criteria Ahead of Time. Know the credit score cutoff, minimum income requirements, etc. before the first application drops. Write them down and refer back to them with every applicant.
Step 2: Only Accept a Standardized Rental Application. The more information available on a tenant the better. Look for rental applications that include employment information, income verification, past rental history, and personal references.
Step 3: Pull a Tenant Credit Report. Use a reputable tenant screening company to run a full credit check on every adult applicant. Evictions cost landlords 2-3 months worth of rent on average — money that’s easily saved by screening ahead of time.
Step 4: Verify Income With Pay Stubs / Bank Statements / Employment Letters. A credit check will tell you how a tenant has handled their money historically. Confirming income will paint the full picture.
Step 5: Run an Eviction History Check. Credit checks won’t always show if a tenant has been evicted in the past. Make sure to screen for it explicitly. Past evictions are cause for concern.
Step 6: Document EVERYTHING. Why was this applicant accepted? Why was that one denied? Keep detailed records of screening standards, what was reviewed on each applicant, and the leasing decision. It’s common courtesy — and it will provide protection if a discrimination lawsuit is filed.
Easy peasy, right?
Frankly too many landlords just “hope for the best” with screening. The landlords who crush it year in and year out have bulletproof systems built around tenant screening. They know where every leak in the process is and seal them off before they’ve had a chance to hurt their business.
Wrapping Up
Tenant screening isn’t optional if you plan on being a landlord for the long haul.
Running a rental application credit check is the single best thing landlords can do to protect their bottom line. Period.
Reviewing rental applications with full credit checks will save you from: late paying tenants, defaulted leases, and major property damage.
Here’s your final checklist:
- Determine minimum criteria (credit score cutoff, income requirements, etc.) before posting your property
- Use a complete rental application for every single applicant
- Pull a credit report on every adult applicant
- Verify income with employment verification
- Check eviction history with a screening service
- Document your screening criteria and leasing decisions
Get your tenant screening process down and everything else will fall into place. Ignore it and you’ll have great rental properties that never make a profit.
