Credit reports for landlords: Do they do the trick?
Aside from tenant references, credit reports are the best resources if you want to know more about potential renters. These reports show any outstanding loans tenants have to settle up and whether they keep up with loan and credit card bills.
Credit bureaus even go so far as to create credit reports specifically for landlords, but they're not perfect. When it comes to assessing a person's overall financial standing, traditional credit reports leave something to be desired. Are there any alternative credit reports that provide deeper insight into tenants' ability to keep up with rent?
The problem with traditional credit reports
When screening tenants, you need to ensure the information at your disposal is accurate, up-to-date and reliable. Suppose you read a prospective tenant's credit report and decide to set up a lease agreement. Six months later, he starts falling behind on monthly payments. Eventually, you have to evict him - something no landlord wants to deal with. According to an analysis from Landlordology, a formal eviction could actually cost more than $5,000 when you factor in the lost rent, lawyer fees, court costs any repairs and other issues.
But are traditional credit scores really that inaccurate? Put it this way: Mississippi Attorney General Jim Hood recently took legal action against Experian, TransUnion and Equifax after receiving numerous complaints regarding the inaccuracy of their credit reports. Consumers kept reporting errors to the bureaus, but they continuously failed to resolve the issues.
What about the credit reports for landlords? Besides the fact that these products may contain inaccurate or blatantly false information, they only provide so much data. For example, some credit reports for landlords provide credit, criminal and eviction records. These features are good, but they don't go far enough.
"What you need to do is find a report that consistently collects rent payment data."
In addition, credit bureaus have a somewhat broken system when it comes to collecting rent payment data. They rely on landlords to send them tenant payment information, but here's the issue: Nine times out of 10, you wouldn't think to send your tenants' rent payment information to a credit bureau unless they missed payments. That means credit bureaus only factor in poor rent payment data, skewing reports.
Alternative credit data: A better option for landlords
What you need to do is find a report that consistently collects rent payment data. Alternative credit reports do this by connecting directly to tenants' accounts (with their permission). So, whenever a tenant sends a payment to a landlord's account, the alternative credit product will register that transaction and include it in a real-time report.
Alternative credit reports also include the following details:
- Any liens, evictions, criminal charges or other public records.
- Utility and telecom payment habits.
- Current and previous addresses.
PRBC MainStreet has been providing alternative credit data to landlords, businesses and lenders for more than 10 years, so it's spent quite a bit of time refining its data collection and analysis process. If you want to know more about the company's alternative credit solutions, read more here.