When you’re looking to rent out your property, you want to be sure you find the right tenant. As a landlord, there’s little worse than going through the process of advertising your property, meeting potential tenants, filing the paperwork, and then inadvertently selecting a problem tenant.
Missed or late rent payments can cause mega headaches. Evictions will cost you and take time. That’s why it’s critical you do the legwork to ensure your tenants are reliable – they have the means to pay rent and they have a history of paying on time.
One way to do your due diligence is by reviewing tenant credit reports. This is a crucial part of your tenant screening process.
What is a tenant credit report?
Credit reports are generated by Canada’s two consumer credit bureaus, Equifax and TransUnion.
An individual’s credit report is an evaluation of their creditworthiness. It shows their credit score and illustrates how well they repay debt with payment records for credit accounts like credit cards, student loans, car loans, and mortgages.
Examining a prospective tenant’s credit report can give a landlord a pretty decent view of their financial reliability. If a prospective tenant has a good credit score and their credit report demonstrates a consistent history of making payments on time, it’s likely that person would make a good tenant. If they have a history of late and missed payments and they’re carrying a lot of debt at the time they apply to rent your property, there may be more investigation to do before offering a rental agreement.
What information is in a tenant credit report?
A credit report essentially contains a person’s borrowing history. It tells you how much they’ve borrowed, how often they borrow, and how reliable they are at paying back their debt. To get a little more into the weeds, a tenant’s credit report will summarize their credit history, including:
Current open loans
Current and past credit cards
Debt load (sum of everything owed across credit cards, student loans, mortgage, etc)
Credit utilization (the amount of credit available versus the amount in use)
Repayment history on loans and credit cards, including missed and late payments
Delinquent loans that have been referred for collection
Evictions, liens against the tenant, and bankruptcies
How do I obtain a tenant credit report?
There are a few different ways to obtain a tenant’s credit report. It’s entirely legal in Canada to source a tenant’s credit report – as long as you have the prospective tenant’s written consent before running a check on them.
Credit reports all come from one of the two consumer credit bureaus, TransUnion and Equifax, as these bureaus maintain consumers’ credit information. However, they don’t have to come directly from the bureaus – many landlords source reports through third-party companies or directly from the tenants themselves.
Depending on the method you use to obtain a tenant’s credit report, you may incur a cost. Getting a report from a credit bureau or through a third-party company will usually cost $10-$30, though some offer monthly and annual subscription plans instead, meaning you can screen multiple tenants per month or year without paying the one-off cost each time. If a tenant provides their own credit report, that is obviously free to the landlord.
From a credit bureau
Once a landlord has written consent from a tenant, you can go straight to one or both of TransUnion or Equifax to get a tenant report. Before you’re able to check on tenants, you’ll need to register and have your identity confirmed and approved as a landlord by the credit bureaus. Just as you’re doing your due diligence on your tenants, the bureaus need to do theirs on you. Then, it’s just a matter of paying for the report.
From a third-party company
There are third-party companies that specialize in background checks for tenants. Many landlords pay to utilize the services of these companies, which take on this administrative task for a fee. Companies like Liv.rent, SingleKey, Naborly, and FrontLobby all perform credit checks on potential tenants. Depending on the company and the level of check you want, these companies can also check employment and income information, social media profiles, and court records.
From a prospective tenant
You can also ask prospective tenants to source their own credit reports to share with you. This is obviously entirely free to you and, in most cases, free to the tenant too – depending on which service they use to obtain their credit report. It’s not uncommon for landlords to ask tenants to provide their own report – you just want to make sure that it’s recent (within the past month or two).
From a property manager
Using a property manager is another option. For landlords who are too busy to deal with tenant administration, or landlords who have multiple properties, it can pay to employ a property management company to look after your rentals and handle tenant screening for you.
What should landlords look for in a tenant credit report?
A credit report provides you a pretty thorough examination of a person’s financial health and habits and illustrates how they treat their finances. Are they reliable and pay their bills on time? Do they frequently pay bills late? Have they had debts referred to a collections agency? Reviewing a credit report helps you determine the risk of a new tenant to decide whether or not you should rent your property to them.
Things to look out for in a tenant credit report:
Your credit score is a three-digit number that sums up your credit history. You accrue points over time if you’re reliable with credit (use and repay credit on time), and you lose points if you’re unreliable (use too much credit and fail to make all your repayments). Credit scores are numbers between 300-900, with scores above 660 generally considered good. At a glance, a tenant’s credit score will give you a good indication of their financial reliability.
Late and missed payments
You obviously want tenants who will pay rent regularly on time and in full. If a credit report indicates a person has a history of making on-time payments, then the chances are they’ll make their rent payments to you on time too. Where a person has a history of missed or late payments on loans, cards, and bills, that could be a cause for concern.
If someone has a high debt load, they may encounter problems paying all their debts every month. When considering debt load you want to also examine a prospective tenant’s income – if they earn a lot, it could be that their debt-to-income ratio is manageable, even if their debt load is high.
These can be important red flags. Derogatory notes on a credit report would include things like bankruptcies, evictions, unpaid loans that have been referred to a collections agency, and vehicle repossessions.
What else can landlords consider beyond a credit report?
Landlords who want to take their checks a step further and get a fuller picture of prospective tenants can do some simple extra checks, including:
Simple web searches on sites like Google will bring up any articles or references to tenants, if they’ve ever made the news (for good or bad reasons). Similarly, it might be worth taking a quick peek at social media profiles on sites such as LinkedIn, Instagram, Facebook, Twitter, and TikTok.
Ask for references
Ask a prospective tenant for references from former landlords and employers. This will verify their place of employment and give you feedback from past landlords who trusted the tenants with their property.
Some third-party companies include these checks in their services when you pay for a tenant screening, in addition to tenant credit check.
What should I do if a tenant has poor credit?
Good credit is obviously desirable in a tenant. But a prospective tenant with poor or no credit isn’t necessarily the worst thing in the world. Poor credit isn’t always a sign of unreliability – people make mistakes and circumstances can be out of their control. Credit is difficult to build but easy to lose, so be sure to discuss credit issues with potential tenants if everything else looks good. And applicants with no credit may be young or newcomers – neither of which is necessarily a red flag.
You can’t determine a lot about a prospective tenant’s reliability to pay your rent when they don’t have any history of paying bills. If you like the person though and think they’d otherwise be a good fit for your property, you might feel safer taking them on if they have a guarantor sign onto the tenancy agreement. A guarantor is a parent, friend, or relative willing to take on the risk of paying the rent if the tenant fails to do so.
Hear out tenants willing to discuss their poor credit history. They may have recently experienced an expensive divorce or lost their job during Covid. You could ask them to provide additional documentation like references from employers, friends, and past landlords. You can even ask to see bank statements and tax returns that might put your mind at ease and prove they have healthy finances, even if their credit score is down.
Sam Boyer spends, invests, budgets, and writes. He enjoys writing about things he wishes he’d learned earlier — like spending, investing, and budgeting. A journalist originally from New Zealand, Sam has written extensively about consumer affairs, insurance, travel, health, and crime.