A Landlord’s Guide to Credit References for Rentals

The Big Picture On Credit References:

• • Utilizing credit references is crucial for landlords in distinguishing responsible tenants from potential problem renters.
  • Landlords are advised to rigorously verify the authenticity of the credit references provided. This involves checking the legitimacy of previous landlords and employment references to ensure they are not fabricated.
  • While every adult resident should provide a credit reference, the exact requirements might vary based on the composition of the household, such as families versus roommates. This flexibility helps landlords tailor their screening process to better assess the specific risks associated with different tenant groups​.

On the hunt for new tenants?

Few landlords would call the tenant screening process fun—but that doesn’t mean you should skip any part of it. That includes asking for credit references from your applicants.

If you’re already running a credit report for applicants, then you might wonder what the point of a credit reference is.

After all, the ability to find so much information on the rental applicant by doing a simple Internet search would suffice, correct?

Short answer: not necessarily. Let’s start with defining a credit reference for a tenant applicant.

What Is A Credit Reference?

Also known as a rental reference, a rental application credit reference is any information vouching for an applicant’s—you guessed it—creditworthiness.

Different landlords define “credit reference” differently, although the most common example of one is a tenant credit report from Equifax, Experian, or Transunion. This isn’t the only type of credit reference, though. Other examples of rental application credit references include:

• • A statement of assets, e.g., a bank statement
  • A letter from a former landlord
  • A letter from a service provider or institutional lender
  • The contact information of one’s personal reference, e.g., employer

Regardless of what form they take, the gist behind credit references is the same: they provide a testament to a potential tenant’s reliability in making regular payments, taking proper care of your rental investment property, and being a good tenant overall.

And while you can (and should!) insure against your tenants defaulting on rent, you still want the best possible tenants in your rental units. Tenants who will pay on time stay for many years and treat your property as if it were their own.

What About a “Rental Reference”?

The term “rental reference” is similar, though often broader in its scope in that it’s generally used to vet a person’s character beyond their finances. That might be an employer who knows just how diligent or punctual their employee is, or it could even be a former landlord who knows whether an applicant is quick to complain about housing issues.

In this way, including rental references in the application to rent, can be revealing of a potential tenant’s renting behavior and history. For example, whether they’ve had cordial relationships or dicey dealings with past landlords.

While this personal type of reference is less definitive in verifying creditworthiness compared to a tenant credit report, that doesn’t mean you should ignore them.

Did you know that the top reasons for eviction are non-payment of rent, damage or destruction to the rental property and disruptive behavior? Getting rental references can be important in determining whether your rental applicant is not only credit-worthy but also one who will take care of your rental property investment.

Additionally, a good rental reference may assist younger rental applicants who may have a limited credit history, though they may be solid candidates otherwise. Just because an applicant is young doesn’t mean that they’ll be a terrible tenant, after all!

What’s Included in a Credit Reference Letter?

Credit reference letters generally describe the capacity in which the letter writer knows the requester, the length of time they’ve been acquainted, and their payment history. The writer should also include details about any late payments, such as the amount owed and the actual payment date.

Of course, you should note that the nature of these rental letters of reference will vary depending on the resource used by the renter applicant.

Some applicants and letter writers may treat the reference more as a request for proof of income, which is acceptable so long as you find the source trustworthy. Others view it more along the lines of a rental application personal reference, speaking to the applicant’s ability to uphold major financial obligations.

The bottom line is this: With prospective tenants coming from all walks of life, not all applicants have established enough credit for their tenant credit report to be accurate.

Types Of Credit References

Here are the types of credit references that landlords can get for applicants:

Why Isn’t a Credit Check Enough?

As a landlord, you’re probably familiar with running a tenant credit report. So why is it that you’d also want to require a credit reference?

First, credit reports don’t include everything. Evictions don’t appear on them, for example (which is why we offer separate eviction reports alongside tenant credit reports). But they also don’t include rent payment history, or cleanliness details, or full income details. What’s more, a credit report will not provide information regarding whether or whether not your renter applicant was a nuisance to others.

Just like a job seeker provides references to speak to their qualifications and character, rental applicants provide credit and rental references to demonstrate their trustworthiness when it comes to following through on money matters. It’s a rental letter of reference, so to speak, that can reveal just how reliable people are.

Without a thorough vetting, you might get stuck with a professional tenant—and these tenants are a landlord’s worst nightmare, preying on sympathy and legal loopholes to make another month of not paying rent on time or at all.

Beyond Screening Reports: Shading in the Details

Still not convinced?

To better understand why rental references are a critical piece of the tenant screening process, here’s a hypothetical.

Perhaps you will receive two appealing rental applications. Both rental applicants are more or less the same in terms of demographic information — credit, income, pet ownership, and so on.

Without a rental reference for each applicant, how do you decide between them?

You could “go with your gut,” of course, but this could be the difference between a responsible tenant who respects the terms of your lease agreement and a tenant who breaks them, whether secretly or overtly.

If you’re an experienced landlord, then you know it’s possible for a renter to appear perfect on paper and yet be a nightmare professional tenant. They may have a solid job but completely disregard your rental agreement’s clauses about pets, smoking, or even the number of occupants.

Thus, rental references help prevent the possibility of choosing a nightmare tenant by screening out the troublemakers.  When possible, ask for rental references for the last several landlords. Unfortunately, current landlords don’t always tell the absolute truth about the renter applicant in an effort to get them out quicker.

Who Should Provide Credit References?

Anyone interested in living on a property should fill out a rental application — this is simply so that you, the landlord, are crystal clear on who exactly will reside on the property. Since most rental applications generally leave room for the names of other occupants, you’ll also be informed of others looking to live there.

That might include other adults, which raises the question: Do you need credit references from them as well?

That’s a tough question, given that housing situations come in all shapes and sizes. Consider a few scenarios:

• • Four recent college graduates looking to live together
  • A married couple supporting one live-in grandparent
  • An unmarried couple living together for the first time
  • A single parent and their college-age son

What Would You Do In Each Of These Scenarios?

Here’s a general rule of thumb: whoever is signing the lease should provide a credit reference, and one or two references per person typically suffice. Obtaining a criminal background report on all those over the age of eighteen can help as well.

By signing their name on a rental agreement, a tenant is agreeing to the landlord’s housing terms, including the responsibility of paying rent. Whoever holds that responsibility, whether that’s one person or multiple, should absolutely provide a credit reference.

However, some leases require that all occupants sign, in which case it may be necessary for all adult signatories to provide at least one credit reference.

Take note: household members under the age of 18 need not worry about providing credit references or submitting rental applications, as most contracts signed with minors generally cannot be upheld in court.

Legal Considerations

Another thing to consider when looking for (or providing) credit references is their legal implications.

In the United States, landlords and lenders must comply with the Fair Credit Reporting Act or FCRA when using credit references that involve credit reports or other information from consumer reporting agencies. This law requires landlords to obtain written consent from the applicant to pull a credit report and to provide an adverse action notice if the information in the credit report is used in a decision that negatively affects the applicant.

Also, a landlord must not use credit references as an undue reason to reject an applicant. To ensure compliance with the Fair Housing Act, all reasons for denial based on any credit reference must be objective and never discriminatory on the basis of race, color, religion, national origin, sex, marital status, age, or because they receive public assistance.  

How to Get a Credit Reference?

Most employers, property managers and owners of rental investment property will want to see permission granted by your rental applicant before furnishing any information. That is why it is important to use a rental application  that includes text that provides this permission.

And never forget a signature! Often these days where the renter applicant simply requests an online tenant screening report, many owners of rental properties forget to get a signed rental application.

SparkRental also offers a free tenant credit reference letter through our online landlord software.

How Can Landlords Verify the Legitimacy of a Credit Reference?

Worried that an applicant will fabricate a credit reference letter or give you fake contact information?

After all, it’s not unheard of for some deceitful applicants to plug in a friend’s phone number under their previous landlord or employer’s name. Or, they may go the professional route by hiring services like CareerExcuse.com to vouch for them.

Oftentimes, these rental applicants aren’t true housing psychopaths or nightmare professional tenants; they’re simply nervous about having a negative reference. But all the same, it doesn’t hurt to play it safe. And finding out an applicant told a white lie may be a red flag for other issues.

There aren’t easy tricks for spotting a lying applicant right away, but there are certainly strategies for verifying a reference’s legitimacy. To find out whether your applicant’s provided a credible reference, try the following:

Verify Employers

For employer references, ask for an email address in addition to a phone number—or better yet, a business card. A business card or even letterhead address can give you more info with which to verify the contact provided by an applicant. Additionally, asking for a pay-stub or proof of payment provides a double-duty reference. It serves as additional verification that the employer is a real place of work as well as proof-of-income. 

Send an employment reference request asking the important questions to verify employment. A quick Google search might reveal whether this person is actually who your applicant claims, or someone else masquerading as them.

Call a Confirmed Number

Instead of calling the boss or supervisor listed on the rental application, do some research on the company itself and call the number listed on its website. Ask to speak with HR, who can easily verify whether your rental applicant actually works at the organization.

Verify Landlords

When you call current or former landlords, ask about whether they have any available properties. If this “landlord” responds with utter confusion, you’ve just caught a fake reference.

Check Social Media Accounts

If the applicant’s Facebook or Instagram account are public, what do their profiles look like? Are they wild party animals, or do they seem reputable? Check to see if they have a profile on LinkedIn. Great way to see if the employer listed on their rental application matches.

Listen

Beyond trying to actively smoke out fake references, see what they say on the phone. Listen carefully for any cues that they’re stumbling with what to say next and following your lead. A fake reference may be clueless on how to serve as a reference and thus only be able to answer in broad, ambiguous terms.

Verify Income Twice

Pay stubs can easily be faked. Either confirm income with the employer’s HR department or ask for a bank statement to confirm that these paychecks have reached their account, which would be listed accordingly as a deposit line item.

Final Thoughts On Credit References

Your rental property is an investment, and that’s not something to be taken lightly, especially when entrusting that investment with someone you don’t personally know.

Just imagine finding out your tenant has caused irreversible property damage that can’t be recovered in their security deposit—you want to minimize any risk of this or any other major tenant issue at all costs. Worse, renting to a professional tenant can cost thousand’s in lost rental income as they sit comfortably in your rental property, while working the system to not pay rent.

That’s why credit references are of the utmost importance when screening tenants.

Of course, credit references aren’t the only factor landlords should weigh when going through rental applications. For instance, perhaps you receive a glowing rental reference combined with an eviction history and criminal background—regardless of whether it’s a legitimate reference, that could be cause for alarm.

Instead, credit references should just make up one facet of your rental application and tenant screening process. This information helps to paint a more holistic image of your prospective tenant and provides insight beyond the standard rental application questions.

What do you look for in rental application credit references?

This article originally appeared on SparkRental and was syndicated by MediaFeed.