By Mark Pappas, SPOA Board member
I was sent an article discussing credit reports (also called consumer reports), which said that anyone requesting a full credit report had to go through a mandatory onsite physical inspection of their rental office to assure the information in the reports is being kept safe and private. It was news to me, and it seemed yet another block to landlords. I needed more information.
The first step to protect your rental property is screening every applicant, and an effective tool is the credit report.
The credit report is prepared by credit-reporting agencies. The best known are Trans Union, Experian, and Equifax. These credit-reporting agencies, however, prefer not to work directly with landlords. They will refer you to their affiliated companies or to a tenant-screening company.
You can request a full credit report, which gives in-depth reporting of an applicant’s credit – how much the applicant owes and to whom – as well as their character, general reputation, and lifestyle. The report could also include their rental history, coming from previous landlords or from public records like housing court or eviction files. And it may include employment verification.
This detailed report of an applicant’s credit history is the one that requires the on-site inspection. This level of reporting, fortunately, is much greater than a landlord needs to screen applicants and make a decision about who to rent to. Credit reports that provide a summary explanation of an applicant’s financial situation are available, and they do not require physical onsite inspections.
Adverse action report
The credit report is a great tool to help evaluate potential tenants, but it does require reporting any adverse action. If the information in the report results in an action unfavorable to an applicant, you must provide notice of the adverse action to the applicant. Such adverse actions include:
- Denying the application
- Requiring a co-signer on the lease
- Requiring a deposit that would not be required from another applicant
- Raising the rent to a higher amount than would be required from another applicant
The Fair Credit Reporting Act, the federal law that regulates credit reports, recognizes that credit reports can contain errors and that the applicant deserves the chance to correct errors. The adverse action report must include:
- The name, address, and telephone number (toll-free) of the credit-rating agency that supplied the credit report.
- A statement that the credit-rating agency played no part in the adverse decision and cannot give specific reasons for it.
- A notice of the right to dispute the accuracy or completeness of the information the credit-reporting agency provided to the landlord. The applicant can request a free credit report and has 60 days to make the request.
If a landlord fails to provide the required adverse action report, they can be sued. If the landlord loses in court, they can be responsible for court costs, legal fees, and, possibly, punitive damages.