Obtain permission to run a credit check
To legally run a credit check on a prospective tenant, landlords must obtain the tenant’s written permission. The consent form should explicitly state that you will run a credit check and you may only use tenants’ personal information for that purpose. If you later want to use the information for another purpose (a criminal background check, for example), you must seek additional consent.
Find a reputable credit reporting agency or tenant screening service
In Canada, there are two major consumer reporting agencies: Equifax Canada and TransUnion Canada. As an individual landlord, you will need to use a credit reporting agency or tenant screening service to obtain another person’s credit report. Equifax also has a product called Tenant Selector, which allows landlords and property managers to obtain similar information.
Information needed to run a credit check on a tenant
To run a credit check, credit bureaus require a tenants’ full name, current address, previous addresses and date of birth. A social insurance number is not required to run a credit check, however it helps to avoid false matches. It is possible that two John Smiths lived at the same address (father and son, for example), and without a SIN to distinguish them their credit records may get mixed up. However, tenants do not have to provide landlords with their SIN.
Can tenants provide a copy of their own credit report?
Tenants often apply for multiple units and are understandably discouraged at the thought of paying each landlord to pull the same credit report. They may obtain their own report and submit copies with their application. Unfortunately, it’s not difficult to forge a credit report using Photoshop or a different identity. You should always run your own credit check on each tenant who passes your application and interview process.
What to look for in a tenant’s credit report
Credit reports will allow you to determine if a person has ever filed for bankruptcy; has been late or delinquent in paying off credit card or car debts; convicted of a crime; involved in another type of lawsuit such as a personal injury claim; or is financially active enough to establish a credit history. Depending on the type of report you order, you may also receive an applicant’s credit, or “FICO” score. This number, ranging from 300 to 850, purports to indicate the risk that an individual will default on payments. High credit scores indicate less risk. Generally, any score above 650 is considered a medium risk or less.
How useful is a credit score for screening tenants?
You should conduct a credit check as a qualifying step for all potential renters. But don’t use it as the only means of selecting a tenant. Credit scores are not a reflection of a person’s other characteristics, such as their ability to get along with neighbours or take care of your property. Credit reporting bureaus have also not found a way to quantify the financial lives of Millennials. Many potential renters will be working as freelancers or on fixed contracts. If they have debt, it is likely student debt and its repayment does not count towards their credit score. Most urban millennials do not have car payments and surprisingly few own credit cards. Even if they’re married with children, their financial lives may not include many of the markers used by credit agencies. Make sure you ask questions and listen carefully to their answers.