If you’re renting out your property, you want to make sure you pick the right tenant. Credit checks and tenant credit reports can help you identify the best tenants and spot any potential red flags.
Not sure what to look for when performing credit checks on potential tenants? Don’t worry, we’ve got you covered! We’ve outlined why you should review tenant credit reports, what information you should look out for, how to read a tenant’s credit report, and how to get a tenant’s credit report.
If you need a quick way to get credit reports from potential tenants, there are options available. Tenants can download their Equifax credit report for free and email it to you by signing up for Borrowell.
Why Should Landlords Review a Tenant’s Credit Report?
Credit checks help you measure how risky a potential tenant may be. Reviewing a tenant’s credit report can help you evaluate three key factors:
- Outstanding debt
- Financial history
- Ability to make payments on time
A tenant’s credit report will list all of the credit accounts that they currently have open. Types of accounts that may show up on a tenant’s credit report include credit cards, cell phone accounts, student loans, car loans, and mortgages. Under each account, you’ll be able to see their current balance, their payment status, their payment schedule, and their payment history.
These details can help you determine if a tenant is stretched thin financially, has too many past due accounts, or has a tendency of making their bill payments late. This will help you eliminate risky candidates who are interested in renting your property. At the end of the day, you want to make sure you’re renting someone who’s able to pay rent on time each month.
What Information Should Landlords Look For on Credit Reports?
The key pieces of information that you should look for on a tenant’s credit report are:
- Personal information: Ensure that the name, address, and date-of-birth listed on the credit report match information that the tenant previously provided to you
- Payment history on credit accounts: Check that the status on and see if any accounts have late payments recorded (30 days late, 60 days late, or 90 days later); too many late payments may signal that the tenant has poor financial habits
- Outstanding balances: Check that the tenant’s outstanding balances on their current accounts aren’t too large; too much debt may mean that they’re unable to reliably pay rent on time
- Public records: Check if the tenant has any bankruptcies, consumer proposals, or judgments listed on their credit report; public records could signal that the tenant may have trouble meeting financial obligations
- Collections: See if the tenant has any accounts that have been sent to a collections agency
- Credit inquiries: Count how many recent inquiries have been made by lenders on the tenant’s credit file
The key information listed above will give you a good idea of the tenant’s financial health and whether they’re likely to pay their rent on time.
How Do I Read a Tenant’s Credit Report?
Reading a tenant’s credit report can be overwhelming, but it doesn’t have to be! Here’s a breakdown of the different sections in a credit report and the details you should be aware of.
The breakdown below is based on Equifax Canada’s consumer credit reports. You can view examples of Equifax Canada and TransUnion consumer credit reports from this resource by the Financial Consumer Agency of Canada: Understanding your Credit Report and Credit Score.
Section 1: Personal Information
This section will list out the tenant’s personal information that’s been collected by the credit bureau, including the tenant’s:
- Full name
- SIN (social insurance number)
- Date of birth
- Current address
- Previous addresses
- Employment status, including employer and occupation
This section may also include a consumer statement. This is a brief statement made by the tenant that explains their financial situation and addresses negative information you might find throughout their credit report. For example, a tenant may state that they were a victim of fraud, that they had issues with a previous lender, or they experienced a period of financial hardship due to a sudden injury or family emergency.
What to look out for: You should quickly check that the personal information listed here matches previous information provided by the tenant when they originally applied for the rental property. If this information doesn’t match, the tenant may not be who they say they are; if they’re partaking in identity theft or fraud, you should avoid renting to this person.
Section 2: Credit Information
This section shows a tenant’s credit accounts, including any active loans, credit cards, lines of credit, and mortgages. It may also show cell phone bills and similar accounts. For each account listed on the credit report, you should look for the following details:
- Status: If the account is in good standing, this will state “paid as agreed and up to date”; if the account isn’t in good standing, this may state “account included in bankruptcy”, “account sent to collections”, or a similar message
- Payment History: This will list if any payments have been made 30, 60, or 90 days late; if you notice that multiple payments have been reported late, the tenant may have poor habits and may not be likely to pay rent on time
- Balance: This will show the current balance that’s due on the account; if the tenant has multiple accounts with high balances, they may be spreading their finances thin and may not be able to afford paying rent on time
- Past Due: This will show how much money is past due on the account, based on the account payment schedule; a large amount past due is a red flag that you should be aware of
What to look out for: If you see accounts sent to collections, late payments, large balances, and past due balances, these are all potential flags that the tenant isn’t financially responsible. Ask them why some of their accounts aren’t in good standing, or consider going with another tenant who appears more financially responsible.
Section 3: Public Records
This section will show any publicly available legal items or court rulings related to the tenant. This section will be empty if there are no public records on file. Public records that could appear on credit reports include:
- Bankruptcies: The tenant can’t pay their outstanding debts and has filed for bankruptcy; this will be removed from their credit report after 6 years
- Consumer proposals: The tenant has made a legally binding agreement to pay off some of their debt to creditors
- Credit counseling: The tenant is working with a credit counselor to pay unsecured debts through a debt management plan
- Judgments: The tenant owes money because of a court action or lawsuit against them
What to look out for: If any applicants have these public records listed on their credit reports, they may not be the most financially responsible tenant you can find. You may want to go with another applicant or ask this applicant about more details regarding their financial situation.
Section 4: Collection Accounts
This section will show any of the tenant’s accounts that have been sent to collections and how large the outstanding balance is. When a tenant is exceedingly past due on making payments to an account, the account may be sent to an external collections agency. This agency will consistently contact the tenant in order to track down those missed payments.
What to look out for: A tenant with an account in collections may not be the most financially responsible tenant, and this could be a sign that they won’t be able to make their rent payments to you on-time. There may be more responsible tenants available.
Section 5: Credit Inquiries
This section shows any credit inquiries or credit checks that have been made on the tenant’s credit file. Credit inquiries can occur in many situations, such as when an individual:
- Applies for a credit card, loan, or mortgage
- Applies for a new job
- Applies for a rental property
In the situations above, lenders, employers, and landlords (such as yourself) will request to pull the individual’s credit report to review their financial information. When this request is made, it’s recorded on the individual’s credit report as a credit inquiry under this section.
What to look out for: If you see a long list of credit inquiries made by banks or lenders, this could be a sign that the tenant is stretched thin financially. They may be applying for additional credit to cover certain bills, or they may be trying to live beyond their means by taking out revolving credit products. This could be a potential red flag that you may wish to avoid.
Are Landlords Allowed to Request Credit Checks?
Yes, it’s perfectly legal for you to perform credit checks on prospective tenants. However, you can only perform credit checks with the tenant’s written consent. This is because credit checks will appear on the tenantʼs credit report and could impact their credit score.
You will need to be up-front and direct when requesting to check a prospective tenant’s credit. You should prepare and provide a credit check request document for the tenant to sign. When the tenant signs this document, you will be authorized to perform a credit check.
It’s common practice for landlords to request a credit report, and you may wish to include this form as part of the rental application that applicants have to sign. For more information about privacy concerns that tenants may have, check out this resource from the Office of the Privacy Commissioner of Canada: Privacy in the landlord and tenant relationship.
How Do I Get a Tenant’s Credit Report?
After obtaining a tenant’s permission, you’ll want to find the most convenient method to check their credit. There are credit and background check services available in Canada that provide you with a tenant’s credit report and other financial information, but these services often cost at least $25 per credit report pull. This can add up quickly if you have many tenants applying for your rental property.
You could also ask tenants to provide a copy of either their TransUnion or Equifax Canada credit report with their rental application. They could obtain their credit report directly through the credit bureaus, but these processes aren’t always seamless and sometimes cost the consumer money.
To download a free Equifax Canada credit report, tenants can sign up for free on a site like Borrowell to download and send their credit report to you. Tenants can sign up to verify their identity and download their verified Equifax credit report in PDF format. From there, they can easily send you a copy of their credit report for you to review. Downloading a credit report through Borrowell won’t hurt the tenant’s credit score.
