How Do Realtors Check Credit?

A credit report is used to gauge the credit history of prospective tenants. If you're wondering how realtors check credit, you've come to the right place.

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‍A credit report is used to gauge the credit history of prospective tenants. If you're wondering how realtors check credit, you've come to the right place.

One of the main things that lenders are concerned about when renting out a property is the potential tenant's ability to pay their monthly rent on time. Checking their credit history is one way to find out if a tenant or a buyer is reliable when it comes to a long-term contract or making a large purchase.

Consumers typically provide permission for a credit report because they seek finance, employment, or other services. Realtors request credit reports from Equifax, Experian, and TransUnion, three of the major consumer credit reporting agencies in the United States. 

To get access to a potential client’s credit report, lenders usually request these reports from Equifax, Experian, and TransUnion, which are the three main credit reporting agencies in the United States. They can then use these reports to approve or reject a client’s loan.

With years of experience in the real estate industry, we are in an ideal position to help guide those who are just entering the real estate niche and prospective renters or property buyers on how the process works.

Table of Contents

Who Can Obtain a Credit Report?

Only employers, creditors, or other companies that use the information to evaluate applications for renting a property, credit, or other similar purposes are allowed to get copies of a person's credit report. Employers are not permitted to obtain a credit report on their employees unless the employee expressly consents.

Lawyers cannot get a credit report to determine whether or not to file a lawsuit. If a client has a legitimate claim against a non-paying debtor, the client can get a credit report on the non-paying debtor based on the amount owed to the client.

Obtaining a Credit Report

Equifax, Experian, and TransUnion are the three major consumer credit reporting agencies in the United States. The Fair Credit Reporting Act (FCRA) imposes significant duties on anyone who receives credit reports. Consumers typically provide permission for a credit report because they seek finance, employment, or other services.

Even if a consumer does not allow the request for a report, the organization offering credit or the landlord and his or her agent can acquire a credit report if the consumer is looking to rent an apartment. When a consumer's application for an apartment or financing is denied in part due to the consumer's credit report, the person who received the report bears certain responsibilities.

The FCRA now requires the three major credit reporting companies to provide a free copy of any consumer's credit report once every twelve months. The reports are available for download on the internet. A real estate agent is allowed to give a copy of the report that formed the basis of or a portion of the unfavorable judgment against the customer to the consumer.

A customer will not be able to receive a copy of his or her report by contacting each of the three national consumer reporting firms separately. The individual must supply their personal information in order to acquire a report, and the realtor can ask the individual for their credit report before signing the contract.

If a person has relocated or if there are discrepancies in the data, more information may be sought. The reports are normally accessible immediately if you use the internet service or within fifteen days if you call or fill out the Annual Credit Report Request Form.

How Can a Realtor Access a Credit Report?

How a real estate agent can lawfully get a credit report is largely determined by how they interact with the potential customer. An agent may represent a landlord, buyer, or seller. It should be noted that what is and isn't allowed varies depending on the scenario. Since a client may hire a realtor in the form of a leasing agent, selling agent, or buying agent, here, we are going to take a look at all three scenarios.

Rental Agents

A credit check is now required for almost all rental applications. Landlords have the authority to impose their own conditions, such as requiring a higher rent or deposit. While landlords may vary their rental criteria based on credit, all applicants must pass the same credit check.

To acquire a credit report lawfully, a real estate agent must first receive a) authorization to run the credit report and b) the personal identity information necessary to obtain an accurate report. This authorization is usually acquired in writing, generally as part of the rental application. When obtaining authorization to run a credit check, the leasing agency must disclose any credit check costs that may apply in line with local state legislation.

If a landlord uses a lawfully obtained credit report to raise an applicant's rate or refuse them, this is known as an adverse action. In this case, the home's landlord must furnish the applicant with precise facts.

If adverse action is taken as a result of a credit score, you need to inform the applicant and provide them with the name of the entity that created the score or report so that any errors may be corrected.

Selling Agents

The credit records of the listed parties are not required by selling agents. Selling agents, like purchasing agents, require information from a lender. Some buyers may try to start with a prequalification, which gives lenders an estimate of the buyer's purchasing power without having to conduct a complete credit investigation.

The selling agent's responsibility is to understand the difference between a prequalification and a complete mortgage pre-approval, which indicates a lender has reviewed the buyer's credit report and assets.

Buying Agents

If a client is having problems getting pre-approval for a loan, an agent may ask some courteous questions to get a sense of the issue and recommend the buyer to professionals who may be able to locate more innovative financing options. Any information given in this situation is completely optional.

In most cases, a buyer's agent will not require a copy of their own credit report. Instead, they will tell their customer to contact a competent and licensed mortgage broker. The broker will then get this data via a contract and secure connection. When the buyer's agent makes the offer, the agent will prepare a pre-approval letter. The buyer's agent will use this during the acquisition of the desired home or property.

Rather than collecting the client's whole credit report, a buyer's agent will be more interested in learning about the client's purchasing power, such as a down payment or house selling contingency. A credit report from the buyer's agent is not required. It can also be used to gauge the client's ability to pay for the rental in cash.

In order to make an educated selection, landlords need reliable information. In the absence of credit history, you may want to consider a higher security deposit or rent payment in advance. However, you'll need to include this criteria in your first screening requirements and make a note of it in the rental agreement's conditions.

When it comes to leasing decisions, relying on a renter-provided credit report or jumping through the hoops necessary to use a credit reporting bureau may not be optimal. Another option to verify an applicant's credit is to obtain a credit report directly from a credit agency. Familiarize yourself with credit-reporting rules and consider seeking legal advice if you have any issues. This is often only a realistic option for landlords with numerous properties to rent, and it takes a significant amount of time and work to execute.

Some prospective renters may bring their own credit records to rental showings. This report, however, might be faked and include false information. Even if the report is genuine, it might have been compiled years ago, which means you're looking at old information that doesn't represent your renter's current financial situation.

Importance of Checking Credit History

Credit checks are an important part of tenant screening since they may help you estimate a person's risk of residing on your property. It's critical to find an applicant who can pay the rent on time and who you can trust to take care of the unit responsibly.

If you don't adequately verify candidates to assist limit the chance of nonpayment, you may end yourself paying for company expenditures out of pocket. Renting to a bad renter might also put your home in danger of harm due to irresponsible behavior or negligence. You may even rent to a renter who then abandons the home, leaving you to pick up the tab.

What If the Report Has Errors?

Many customers have had their credit damaged as a result of credit reporting company inaccuracies. According to the FCRA, if a consumer reporting company receives written notification that an entry on a report is disputed, the company must investigate the items and, if an inaccuracy is discovered, the disputed item must be removed from the report.

The consumer reporting agency must also tell the other two nationwide consumer reporting agencies so that they can rectify the information. Furthermore, if the customer is accurate, the consumer reporting business must offer a written report and a free copy of a report indicating the removal of the disputed item. The reinsertion of such material in a report is subject to tight guidelines.

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