Tenant Screening: A Comprehensive Guide

Tenant screening is the first layer of defense for your properties. It can be a time-consuming and sometimes overwhelming process, but it’s similar to having the night’s watch guard your ice wall against property damage, bad tenants, white walkers and every evil out there.

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A survey found that one out of every eight rental applications contains fraudulent documents, making it more important than ever to invest in your tenant screening process before leasing and property management.

In this article, we’ll go over everything you need to know to screen and find the perfect tenants for your rentals, from the screening process to legal requirements, tenant screening services and much more! Let’s dive in!

Article Roadmap

• What Is Tenant Screening?
• The Tenant Screening Process
• Questions To Ask Prospects
• Best Practices
• Laws and Regulations
• DIY Tenant Screening vs. Third-party Services
• Popular Tenant Screening Services
• Comparing Tenant Screeners
• FAQs
• Wrap Up

What Is Tenant Screening?

Tenant screening is the process of evaluating potential tenants to assess their suitability for your property. It involves reviewing financial backgrounds, employment and criminal history to determine whether a prospective tenant is a reliable fit with minimum defaulting chances.

Here are some of the common types of tenant screening report you can use:

• Credit Reports
• Background Checks
• Employment Verification
• Past Rental Experience Reports
• Criminal Records
• Eviction History

Conducting tenant screening before leasing your properties can help you:

• Minimize losses: You can avoid renting to tenants with a history of defaulting on rent or causing property damage.
• Promote safety: A thorough screening process catches people with a history of criminal activity or violence, helping maintain a safe society.
• Ensure stability: It identifies responsible tenants who are more likely to pay rent on time, follow lease terms and be responsible renters.
• Legal compliance: Tenant screening reports enable you to comply with local and federal regulations like Fair Housing and Fair Credit Reporting Acts. It safeguards you from future disputes if a tenant sues you on false grounds.

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The Tenant Screening Process

Now that you know what tenant screening is, let’s look at the basic steps on how to do it:

Step 1: Pre-screening Potential Tenants

The foremost step involves determining your minimum tenant criteria. We recommend compiling a tenant screening checklist, which will be your guiding light throughout the process. Here are some common criteria you can consider in your checklist:

• Minimum Income
• Past Rental Experiences
• Employment Status
• Credit Score
• Legal History

You should also set your tenants’ expectations with informative rental ads. That’s the first step to pre-screen and attract the right people. Disclose all necessary information and potential deal breakers such as property size, parking facilities, pet policies and smoking rules.

Step 2: Rental Application

Once you’ve finalized the screening criteria and rental ads, it’s time to accept applications from interested parties.

Start by designing a uniform application form for all your prospects to comply with fair housing laws. You can request them to disclose contact information, social security number (SSN), rental history, employment status, personal references and other information that helps you verify their identities.

Step 3: Credit and Background Checks

Credit and background checks are the first telltale signs that help avoid problems in the future.

Transunion, Experian and Equifax are the main credit reporting agencies that use FICO and other scoring models to give you an applicant’s detailed credit history. Here are a few metrics you should keep an eye on while evaluating credit reports:

• DTI Ratio: High debt-to-income (DTI) ratios suggest that a person can have a tough time covering rent in the future.
• Credit Cards: Having too many credit cards for retail purchases indicate overspending and could be a red flag.
• Credit Maturity: Young people can have lower credit scores, and you can consider a co-signer for their leases.
• Rent Payment History: Look out for delinquent payments and how long a person took to solve the matter.
• Overall Score: Set a minimum qualifying credit score for your tenants. A score between 650-900 shows a healthy credit history and reliability.

Ideally, you should look at reports from all three agencies to get a holistic view of an applicant. On top of that, you should also check state and federal criminal records, terror watchlists and sex offender registries.

But make sure to double-check the name and personal information in reports because you don’t want to deny housing due to an error or confusion.

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Step 4: Employment and Income Verification

A few documents that can help you verify an applicant’s employment are:

• Pay Stubs
• Tax Returns
• Offer Letter
• Profit and Loss Statement
• Social Security Benefits Statement

You can set a minimum income requirement for your rentals. A good guideline is a 3x rent rule, which states that the gross monthly income of an applicant should be three times the rent amount.

Step 5: Reference Checks

You can request applicants to submit reference letters from previous landlords to gain insight into whether they’re easy to work with. You can ask these questions:

• Did the applicant pay rent on time?
• How much was the rent?
• Did they damage property other than normal depreciation?
• Were there any complaints by neighbors?
• Would you recommend them?

You can also accept letters from a boss, teacher (for students) or other personal references.

Step 6: In-person Interviews

We recommend conducting one-on-one meetings with applicants to give them a chance to review reports and provide explanations for derogatory items.

It also gives you a chance to witness a person’s character. It’s easy to embellish facts in reports but tougher to follow up on in person. Pay attention to how they answer questions and read between the lines.

Take note of things that stuck with you. But remember that interviews are a part of and not the entire screening process itself. A person can just be nervous during an interview. Blend one-on-ones with tenant screening reports to make a good assessment of an applicant.

Step 7: Finalizing the Lease Agreement

By now, you’ll have enough data and resources to make a decision. In some situations, you may not find the perfect tenant that ticks all the boxes in your requirements checklist. That’s alright. You can either move on to other applicants or assess the strengths and weaknesses of the current one.

However, you should avoid making emotional decisions. When there are red flags all across a screening report, reject the candidate even if they’re kind or polite.

Once you finalize an applicant, it’s time to design an agreement with necessary terms and conditions, rent amount, security deposits and leasing periods. You can do it manually or use lease management platforms that offer state-specific templates to help you design accurate and compliant leases with a few clicks.

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Questions To Ask Prospects

You must be consistent with your questions during an interview to give everyone a fair chance. A good practice is to create a list of questions you can loosely refer to during meetings. Here are some model questions for applicants:

• When can you move in?
• Have you notified your current landlord?
• Why are you moving?
• Do you have pets?
• How many people will live in the unit?
• Have you had problems with rental agreements before?

Be careful about not discriminating based on gender, race, religion, nationality or disability. The Federal Fair Housing Act protects applicants from discrimination. Here are a few sensitive questions that are illegal to ask applicants:

• Do you go to church in this area?
• Where do you come from?
• When is your baby due?
• What’s your sexual orientation?
• What’s your race?
• Do you receive public assistance?

Best Practices

Here are a few additional tips you can use while screening tenants:

• Confirm their identities online. A simple Google search can unearth facts about someone that you can’t find in credit reports. Check their social handles to get an overview of their lifestyles.
• Avoid contacting personal references and previous landlords through numbers provided in rental applications. It’s easy to dupe on a phone call with a voice changer and a bit of confidence. Try to research and find contact information on LinkedIn, other social networking sites and company websites.
• Request photo identification before signing documents. It validates the identity of the person standing in front of you during an interview.
• It’s a good idea to consult a real estate agent while screening and leasing. Their experience and knowledge can help you avoid common pitfalls and get the ideal tenants your properties deserve.
• Complicated screening and applications can dissuade prospects from completing the process. You can use rental property management solutions that offer online application portals with an intuitive workflow, which lets prospects finish an application in a few minutes.
• Consider using AI to analyze tenant screening reports. It adds a layer of context and insights to the figures in a credit report. Someone may have a poor credit score due to committing fraud or just a bad divorce. AI unearths details that help you make informed decisions. You can use property management solutions like AppFolio, Buildium and Propertyware that offer a native AI.
• During the leasing period, you can consider reporting on-time rent payments to credit agencies to boost your tenants’ credit scores.

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Laws and Regulations

The Consumer Financial Protection Bureau (CFPB) recently released the Consumer Snapshot and Tenant Background Checks Market report. They found that:

• Between January 2019 and September 2022, the CFPB received around 26,700 complaints on tenant screening. 65% of them were related to false or inaccurate information in reports.
• Algorithmic risk scores used by credit agencies don’t account for an applicant’s past rental payment history. Only 1.7%-2.3% of U.S. renters have a fair representation of payment history in tenant screening systems.
• 68% of renters pay application fees which include the cost of tenant background check reports but often don’t have visibility into the information they contain while making rental decisions.
• Many landlords don’t send adverse action notices before rejecting an applicant, which is legally mandatory, as stated in the Fair Credit Reporting Act. Therefore, renters can’t find the reason for rejection and dispute false or outdated information.
• The Department of Justice issued a statement of interest in Fair Housing Act cases alleging illegal algorithm-based screening processes.

Due to such discrepancies, it’s time that landlords and property management companies learn U.S. laws governing tenant screening to maintain compliance and offer a fair shot at housing to everyone. If you aren’t sure, here are two of the major laws you should keep in mind while screening applicants:

Fair Housing Act

The Fair Housing Act prohibits discrimination in housing based on race, color, religion, nationality, sex, family and disability. It’s also known as the Title VIII of the Civil Rights Act of 1968. It’s a federal law, and states can enhance and add protections under the act but can’t reduce or diminish clauses from the original one.

You must ensure compliance with this law during tenant screening by treating all applicants equally and not using discriminatory criteria in their screening process.

A few examples of discrimination under the act include:

• Refusing to rent or sell a property to someone based on their race.
• Charging different rates to people based on their origin.
• Refusing to make reasonable accommodations for a tenant with a disability.

The U.S. Department of Housing and Urban Development (HUD) and the Department of Justice (DOJ) enforce the Fair Housing Act. They investigate complaints of housing discrimination and take legal action against violators. However, it’s important to remember that proving discrimination in court demands proper documentation and patience.

Violations of the act, once proven, can result in significant fines and penalties. Property owners must understand and comply with rules to avoid legal issues.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a law enforced by the Federal Trade Commission (FTC) and the CFPB. It governs the collection and reporting of an individual consumer’s credit history.

It states how a credit reporting agency can obtain information, how they can share it and how long they can keep it. Here’s a brief breakdown of things you need to do as a credit reporting agency to maintain compliance:

• Take appropriate steps to ensure that the information provided is correct.
• Request certifications from landlords or property management companies to ensure they use the information only for housing or other permissible purposes like loans or mortgages.
• Educate landlords about their responsibilities and obligations under the FCRA before providing reports, such as issuing an adverse action notice to applicants before denying them housing.
• Honor the rights of tenants and applicants.

Under the FCRA, tenants and consumers have the right to:

• Receive notifications when rejected due to a report’s content.
• Verify the accuracy of a report.
• Remove negative and outdated events from reports after seven years of occurrence.
• Dispute false information and have the credit bureau correct it.

If the information is proven inaccurate, the credit bureau must fix the error within 30 days. But unfortunately, news reports have highlighted major problems with tenant screening reports, and errors are rarely fixed within this period.

If you’re a consumer who’s facing false or outdated allegations by a credit agency, you can file complaints with the CFPB.

The FTC also acknowledged this problem in the tenant screening market. It recently opened a request-for-information portal to accept comments, opinions and suggestions from consumers, landlords, agencies and the rest of the market.

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DIY Tenant Screening vs. Third-party Services

When you’re on your own throughout the screening process, it can get taxing. You have to create application forms, do credit checks, verify incomes and identities, check criminal history, take interviews, and think about leases. All the while hoping you don’t make a mistake that lands you on the wrong side of the law.

Tenant screening services are specialized consumer reporting agencies that run the entire process to give you a comprehensive analysis at a cost. Some of the advantages of using these services over doing it yourself are:

• Accelerate Screening Processes: They are fast! These services offer connections with major credit reporting agencies and can provide a snapshot of an applicant’s health in a few clicks.
• Safeguard Applicants’ Information: Applicants may not be comfortable sharing their personal information with unverified landlords online. Tenant screening services safeguard their data and only share screening reports with managers and owners.
• Avoid Affecting Credit Scores: Most of these services allow applicants to request a credit and background check on themselves, which is considered a soft hit and doesn’t affect their credit scores.

Popular Tenant Screening Services

The best tenant screening service for you depends on what you’re looking for, and it isn’t the same for every landlord and property manager out there.

That said, here are brief overviews of some of the most popular tenant screening services for landlords:

SmartMove

SmartMove by TransUnion is a reliable FCRA-compliant screening service for landlords and property management firms. It doesn’t require memberships, setup fees and minimum or monthly costs but charges individually for each report.

Its standout feature is the income insights report that accounts for non-work expenses like child support and alimony to fairly represent an applicant’s financial health.

It also allows you to include screening costs in the prospect’s rental application fee. However, note that it can’t check criminal records for Hawaii, Illinois, Delaware, Massachusetts, New Jersey, South Dakota, Wyoming and Kentucky.

RentPrep

RentPrep is a unique screening solution that trains and hires FCRA-certified screeners to perform manual screenings using machine learning and artificial intelligence. While other options on our list provide reports within a few minutes, RentPrep might take a few hours. But you’ll receive in-depth reports with human context and insights into its figures. You can better understand an applicant’s situation and maintain compliance with the Fair Housing Act.

It can check an applicant’s identity, employment, credit history, criminal background and eviction experience. This solution also offers discounts and bulk pricing for landlords and managers with more than 50 units.

TurboTenant

TurboTenant is a property management solution that allows you to launch immersive marketing campaigns, screen tenants, design leases, accept rent payments and maintain accounting books from a centralized platform.

It offers a quick and intuitive screening experience you can initiate from anywhere using the native mobile app. It guarantees reports within less than five minutes and includes:

• TransUnion credit scores
• Bankruptcy and eviction history
• DTI ratios
• Criminal records
• Income verification

The platform has the option to include the screening fee with rental application forms. It accepts online rental applications and offers portals to renters to view reports, store preferences and personal information, and chat with owners and managers.

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Comparing Tenant Screeners

Each tenant screening service or tenant screener is different from the other, and you must carefully assess your business requirements to identify the perfect fit. Consider the following factors to gauge the differences in services:

• Credit Reports: Do they provide a full-fledged credit report or a score based on algorithms? Where do they get the data? Do they use credit reporting agencies? If yes, which one?
• Criminal Backgrounds: Check if the tenant screener provides nationwide or state-specific criminal background checks.
• Turnaround Time: How long does it take to generate reports?
• Eviction Reports: Most pocket-friendly tenant screeners don’t include an applicant’s eviction history in their reports. You have to manually contact past landlords to know their experiences.
• Accessibility: Having an online portal for prospects to fill out application forms is convenient.
• Pricing: Cost is the most important factor. Check if they have bundles or à la carte options. Many services allow you to defer the cost to applicants as well.

FAQs

What’re some red flags to look out for during tenant screening?

Here are some subtle red flags you should keep an eye on during tenant screening:

• False information in a rental application can either be a mistake or an attempt to manipulate your decision.
• Refusing to cooperate when you’re verifying employment, eviction or criminal background can be a warning signal.
• People with poor rental histories often stay with family members and use them as landlord references.
• Applicants with a history of moving frequently warrant further investigation.

How should you reject applicants after screening?

It’s awkward to reject an applicant. But in such situations, remind yourself that rejection is better than going through the eviction process. Here are some guidelines you can follow to have a smooth experience while rejecting applicants:

• Communicate Clearly: Let the applicant know about the rejection and your reason as soon as possible.
• Be Consistent: Ensure that you are rejecting applicants based on legitimate reasons and that you are applying the same standards to all applicants.
• Provide Written Notification: Follow up with a written letter or email outlining the rejection’s reason and any other relevant details.
• Offer Guidance: Provide information to the applicant on how they can improve in the future.
• Be Professional: Avoid using derogatory or offensive language.
• Keep Records: Keep detailed records of your tenant screening process and any communication with applicants in case you need to defend your decision in court.

What’re some common pitfalls and mistakes in tenant screening?

Mistakes are an important part of the learning process. But here are a few common pitfalls you can avoid in your journey:

• Rushing through the tenant screening process.
• Not verifying identities and credentials before making a decision.
• Leasing properties before meeting or interviewing prospects.
• Having an inconsistent interview process for applicants.
• Not maintaining records of screening reports.

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Next Steps

Tenant screening is an essential step to ensure that you select safe and reliable tenants for your properties, thereby safeguarding your assets from damages and potential loss of income in the future. You must be patient and unbiased while evaluating each applicant.

If repeating the process for each applicant overwhelms you, consider using property management tools. These systems digitize and streamline the process, saving resources and allowing you to manage everything from a single screen.

So don’t wait. Take the necessary steps to get the best tenants for your units. You can check out our free comparison report that lets you compare the industry’s top property management solutions based on features, pricing and other custom criteria.

Do you think your existing tenant screening process needs improvement? What are the biggest challenges you face while screening? Let’s talk. Drop a comment below.