How to Read a Credit Report

July 29th, 2010 · 17 Comments · Property Management, Rental Property

Your tenant search has ended and you finally have an applicant! It’s all smooth sailing from here on out. Right? Well, not exactly, because now you need to make sure the tenant is decent and will pay the rent.

Required Documents

You need to have an application, and a lease. A Tenant Information Package is required by law if you’re in Ontario. I also recommend a Unit Condition Report, all of which I will give you for FREE – just shoot me an email from the contact form or post a comment and I’ll send you a set of blank forms. My lease and application is as simple as I can get it. It’s a Word Document that can be modified to suit your property. I want people to READ it and understand what everyone’s responsibility is. In Ontario almost every single aspect of the landlord and tenant relationship is completely set out by the Residential Tenancies Act. Writing contracts that are not enforceable is a waste of my time. Sweet and simple is how I like it.

Tenant Verification Services

You need to get set up with a credit checking service like Tenant Verification Services. Unlike Transunion or Equifax they don’t require an annual fee for membership. You do have to become a member. I pay $240 for my annual fee with Transunion. I also pay for every credit check. I had to give Transunion a $400 deposit and wait 2-3 months until they could could come around and check out that I had an office and paper shredder and secure computer.

You need the following documents to sign up to become a member with Tenant Verification Services then you can do credit checks on your tenants.

1. Current telephone or cellular bill (MUST be current and list your name, current residence, and the phone number listed on your application)
2. Proof of identification (valid driver’s license or Passport)
3. Proof of ownership for the rental property (two of the following documents: Deed, Insurance Declaration, Mortgage Statement, Title or Transfer Papers, Settlement Statement, Escrow, Utility, Purchase and Sales Agreement)

You should do this ahead of time because it’s a bit of a pain. Once you are set up, credit checks cost about $21.00. That $21.00 will save you thousands if you avoid just one bad tenant.

Renting

I don’t believe a word anyone says. I have learned that I should believe evidence. Every single item I ask for in my application is either a hard copy or photocopy of documents I look at with my very own eyes. I ask for photo ID, pay stubs or other proof of income and SIN card.

I don’t put too much emphasis on landlord references. The worse the tenant is the more some landlords will lie. You might lie too if you had a deadbeat who owed you thousands of dollars living in your place. You also have to watch what you say because of the Privacy Act. I generally won’t lie about a reference; I’m not worried about being sued. Big corporate landlords and employers will often require the tenant to go into their office and fill out additional forms that give them permission to talk to you.

Real Estate Agent Rental Story

What you need to watch out for is references that go like the one I had with a real estate agent who rented to a tenant of 13 years that I kicked out for yelling and freaking out at me one too many times.

Agent – Is Mr Soandso a good tenant?
Me – He’s been a tenant here for 13 years.
Agent – Does he pay the rent?
Me – He’s been here for 13 years, he has occasionally paid the rent.

I don’t say he is a good tenant, I even intimated that he doesn’t always pay the rent on time. Surprisingly, even after this reference, the agent rented to Mr Soandso. These people were hoarders and pigs. The agent actually went to their house to sign the lease and still didn’t call off the deal. The argument I had with the tenant came about  during the course of the Energy Audit (I had delivered notices a week in advance). I told him to move a large rolled up carpet and one of his wall to wall couches. He threatened me with punching me in the face because I hadn’t given him proper notice. When I told him that I had delivered the notices a week before he told me he couldn’t read so I hadn’t notified him. There was so much junk in his house we had to post the eco energy sticker on the outside of the door to the basement because neither I or the energy auditor wanted to jump over the washing machine blocking the way so we could try to put it on the electrical panel in the basement.

To protect yourself from lawsuits you’re not supposed to say anything bad about the tenant. Be aware of this and read between the lines. Listen to what the person doesn’t say.

Here’s a link to more about how to ask for a tenant reference on Boston Real Estate Now You have to learn how to ask the proper questions to get the answer you need.

Why You NEED a credit check

You have a bunch of documents and you need to check that your new tenant is not a liar or frauster! Here’s a list of what documents you can check against the credit report.

  • Address
  • Frequency of moves
  • Employer
  • Collections

You are checking that their current address and current employer match what it says on the credit report. You are checking that they don’t move every 4-5-6 months. That usually means they are being evicted and moving from place to place. You are checking that they pay their bills. If you are lucky there will be some good stuff on there too. It depends where your property is and what kind of property it is. I managed a property for a while in South Oshawa. I did not receive one application I would consider “good” in over a year. It was picking the less bad application! Hopefully you don’t have a place like that.

For tenancies you don’t get a score. You just get the information.

Another thing you should be aware of is that mistakes do happen with credit reports. Last year I pulled a credit report on a very bad tenant. His credit was unlike anything I’d ever seen before. My best guess was that it was a combination of two people’s credit reports. One person was exceptional and the other never paid a bill. Unless American Express started giving out $50,000 credit cards to people on Ontario Works, it just was not possible. If I wasn’t on the ball I might have thought I had a great tenant.

Unless you are renting a nice place in a demand area you probably aren’t going to see any great credit reports. You’ll see a big difference between applicants for the basement apartment and applicants for the main floor of a house. That’s just realistic, after all before April of this year, if you had a good job and good credit you could buy a house of your own.  Common debts that are not paid are student loans, cell phone and cable.

Collection amounts from $3000 to $6000 are indicative of evictions. ‘That’s the amount tenants will owe after an eviction.You need to double check all the information and verify it by using an impartial source.

Avoiding Bad Tenants

People who are intent on victimizing landlords are looking for vulnerable, desperate, or naive landlords. Just this afternoon I spoke to someone and their first question was “What do I need to get the place?” She went into a long sob story about how she had to attend a funeral, how she took care of her mother who died of cancer, how she lost her job, why she was on Ontario Works. She said she had a job, but she didn’t have proof. All this in a 5 minute conversation. I told her I need photo ID, proof of income and a credit check. The silence was palpable. She couldn’t get off the phone fast enough as soon as I said that.

Just saying that you have an application, lease and credit check may scare off a lot of people. They’d rather pick lower hanging fruit than you! They’ll just move on and look for another landlord sucker. Don’t be that guy!

Protect yourself !

Getting a credit check is just one of the ways you can protect yourself against bad tenants. I wrote another article at Million Dollar Journey called The Art of Tenant Selection. When you are renting an apartment to a tenant you are giving them an unsecured loan worth the value of your apartment. You are lending them you asset worth hundreds of thousands of dollars in exchange for a fee. You trust that will not damage your asset. Therefore, making sure that they have the ability and willingness to pay the rent is essential. Paying $21 for a credit check is just good business. So start an account at Tenant Verification Services and be ready for your next rental.

Happy & Safe Renting!

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