How To Read A Credit Report
As a landlord or property manager, the decision of whether or not to rent to a potential tenant can bring up many questions. The main question is whether a new tenant will pay their rent on time, but you might also wonder if they could post a security threat. This is where tenant screening comes in.
Once you have access to tenant screening reporting, how do you read the reporting? Let’s take a look at the 5 basic components of a TransUnion credit report, and how you can use this information to make an informed decision about an applicant.
Personal Information
Determine at a glance whether the application information (name, current address, social security number and date of birth and employment) is the same information included on their application. This section is meant to help you validate that your applicant is who he (or she) says they are, so you can be confident who you are renting to.
Report Summary
Provides a snapshot of all active accounts; such as credit cards, auto loans, student loans and medical bills. This gives you a good idea if a prospective tenant meets their monthly payment commitments.
The general recommendation is that your prospective tenant should only spend about 30% of their gross monthly income (before taxes) on rent. Taking note of the accounts balance and monthly payments will help determine if they have enough income to comfortably cover rent. You should also review if there is a history of late payments or accounts
in collections.
Scorecards
Applicants are awarded a score from 300-850, with 850 being the best score possible. A Higher score indicates a lower credit risk. FICO scores consider both positive and negative information on a credit report.
Collections/Tradelines
Collections identifies if there are any consumer accounts that have been placed with a professional debt-collecting firm. While Tradelines details the historical and current record of the consumer’s buying and payment activities by account.
Trade information includes the following:
• FIRM NAME/ID: Abbreviated name of credit grantor/data furnisher
• ACCOUNT#: Consumer’s account number with the
credit grantor (for consumer protection reasons,
partial or truncated account numbers are displayed
within the tradelines)
• KOB/TRADE TYPE: Credit grantor’s Kind of Business (KOB), a categorization of the type of trade line issued
• STATUS: Current standing of trade line
• OPENED: Date the account was opened
• REPORTED: Date of the last update on the account
• ACCT. TYPE: Type of account issued by credit grantor
• CREDLIM: Maximum amount of credit approved by credit grantor
• HIGHCRED: Highest amount ever owed by the consumer on that account
• LST. PAYMNT: Date the account recorded the last payment
• BALANCE: Balance owed as of date verified
• PASTDUE: Amount past due as of date verified• ORIG. AMT.: Amount indicated when account was opened
• MO PMNT.: Amount of monthly payment
• DATE CLOSED: Date the account was closed or paid
• OWNER: representing the ownership designation type
• 30/60/90: Summarizes the reported delinquency on the account. The numbers equal the number of times the subject has been 30, 60, or 90 days delinquent, respectively.
• PATTERN: This shows the pattern of payments by month to show where, if any, delinquency occurred.
• TERMS: This represents the number of months that this lender expected payment to be made.
Inquiries
This section displays which companies viewed the consumer’s credit file over the last two years. This helps you to get a sense of the applicant’s credit activity.
Credit reports are an important part of the screening process but don’t forget it is just a piece of the puzzle. You still want to take important steps such as meeting the applicants in person, speaking with their references and employer to ensure they are currently employed and have a solid rental track record. Be sure you download the Prospective Tenant Checklist so that you can ensure you don’t miss any steps for each and every tenant!
Credit reports and background check data provide a way to mitigate risk, coupled with our FREE proprietary Incident Reporting, we combine information collected daily from landlords, property managers, property owners and real estate agents that allow for tracking and recording of leasing incidents and violations that occur on the property. theRRD provides you the most thorough tenant screening service available.
We hope this review of how to read a credit report will enable you to make an informed judgment call, allowing you to find great tenants and minimize problems with your property. We are here for you to help
you achieve this!
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