Qualifying a new applicant means putting them through your standard tenant screening process. The screening process starts with your rental advertisement and first contact, and ends when you sign the lease.
During this process, there are things to look for that will put your mind at ease (good credit history, high income, etc.) and warning signs that should give you pause. If you follow a thorough and consistent screening process you can feel confident in your decision to qualify a tenant -- or not.
For those who don’t make the cut, you’ll want to let them know immediately so they can continue on their search for a place to live. As much time and thought go into qualifying a new applicant, sometimes the hardest step can be declining a tenant who doesn’t qualify. Not only is it awkward at times, but you want to be sure you’re following best practices and any applicable laws you’re subject to such as the Fair Housing Act and local housing laws.
Let’s start by looking at how to qualify a prospective tenant, and then review how to gently decline them if they aren’t a good fit.
Here are the seven criteria that an ideal tenant should have:
1. A good financial credit history
According to a 2014 SmartMove user survey, landlords’ number one concern about new tenants is non-payment of rent. If an applicant has no big warning signs such as apartment related collections or judgments on their credit report, and a high credit score, it generally shows they have a history of making payments on time and are likely to continue to do so in the future.
If you use SmartMove’s online screening service, you’ll be provided with a leasing recommendation and a ResidentScore. A ResidentScore is a credit score specifically designed to look at the outcome of a lease using the powerful data and analytics of TransUnion. ResidentScore predicts evictions 8% more often in comparison to a typical credit score in the bottom score ranges where risk is greatest.
2. Clean background check
It’s ideal to know whether a tenant has any relevant criminal offenses on their record. An applicant with a clean criminal check is an easy indicator that you can trust them with your property and the neighborhood. You’ll want to be sure to perform a criminal check at both the state and national level that includes Most Wanted Databases and the National Sex Offender Public Registry.
3. Clean eviction check
A clean eviction check is a good indicator that the applicant has a positive rental history. TransUnion research shows that evicted residents have nearly three times as many prior eviction and rental-related collection records when compared to non-evicted residents. Since prior evictions are predictive of future evictions, an eviction record should be a warning sign that landlords take seriously. Of course, you’ll still want to contact past landlords for a reference check, to make sure the prospective tenant’s behavior at prior residences was up to par.
4. Stable employment history
If you want to increase the chances of being paid on time, you’ll want to look for stable employment history. A person who has held the same job for several years and does not have large gaps in employment demonstrates that they have steady income. Not only is this a good sign that the tenant will pay the rent, but there’s also a good chance they will renew their lease since they don’t have a history of changing jobs frequently (requiring multiple moves).
5. Sufficient income
While a credit report is a great measure of a prospective renter’s financial credit history, it is important to verify employment and income for assurance that the prospective tenant has means to pay the rent. A ratio of three times the income to rent is the industry standard. This typically shows that if any unforeseen expenses come up for the applicant, they are more likely to still have enough money to pay their rent.
6. Positive reference checks
Positive landlord, personal, and employer reference checks go hand-in-hand with your tenant screening reports. Reference checks should verify that the applicant was a good tenant who paid rent on time and left the unit in good condition, and that they provided accurate information about their employment status. You will also want to have an actual conversation with their employer, on a company line.
Denying an Applicant
Certain state and local laws limit the criteria you can use to screen applicants. You may want to consult with an attorney to determine whether you are subject to any fair housing laws.
However, here are five reasons why you may choose to deny a rental applicant (and are legally within your right):
1. Tenant does not meet your screening criteria
As long as your criteria comply with all relevant fair housing laws and related landlord-tenant laws, it is okay to decline an applicant if they don’t meet your criteria. For instance, if a tenant has a recreational pet when you don’t allow pets. Other reasons you may wish to decline a tenant is if they are a smoker and you have a non-smoking unit, or they have too many people for the space. If you have four people looking to live in a one bedroom apartment, that may be reason enough to deny the application.
Again, it’s a good idea to mention your criteria in the rental advertisement, so you don’t spend your time screening a tenant who doesn’t meet your requirements.
2. Poor credit check
Every landlord has their own criteria when it comes to credit history. While a low credit score may not be a deal breaker, warning signs such as past bankruptcies, collections for unpaid rent, and tenant judgements all can indicate potential problems in the future.
If you screen with SmartMove, you’ll receive a credit-based ResidentScore that is designed to predict the likelihood of a bad rental outcome on a lease. According to a SmartMove 2016 user survey, three out of four landlords prefer ResidentScore to a general credit score. That’s because a ResidentScore is built specifically for tenant screening, predicting evictions more accurately than a general credit score.
3. Lengthy criminal history
SmartMove data shows that 60% of landlords believe criminal history is more important than credit history, and with good reason. An applicant with a lengthy relevant criminal history could potentially put your property and the neighborhood at risk.
The U.S. Department of Housing and Urban Development recently provided new guidelines on how to handle criminal records. They recommend making decisions on a case-by-case basis, keeping mind the severity and length of time that has passed since the offense. However, if you have an applicant with a lengthy criminal history, it can be acceptable to decline an applicant based on relevant criminal history.
No landlord wants to put themselves at high risk for having to evict a tenant. Prior evictions are predictive of future evictions, so it’s important to order an eviction report along with a credit and criminal history. Evictions cost $3500 on average (based on SmartMove user experiences), which is an expense that many independent landlords cannot easily absorb. When you order an eviction report, you can see whether your applicant has been evicted in the past, helping you to determine their level of risk.
5. Poor reference checks
If you contact prior landlords only to find out that the tenant has been a chronic late-payer, or left the unit damaged, you may decide that the tenant is not a good fit.
When notifying an applicant of any denial or other action with respect to his or her application, you should be sure to follow all relevant laws. For example, the Consumer Financial Protection Bureau publishes a Notice of Users of Consumer Reports and identifies a user’s notice obligations when taking an adverse action against the subject of the report, like an applicant.
Check with an attorney if you’re unsure of how to handle declining an applicant.
Summary of the Screening Process
A full tenant screening is one of the most crucial steps in finding a good tenant. Some questions can’t be answered by a quick glance at a tenant’s appearance or their Facebook profile. Since a full tenant screening costs time and money, there are several ways you can pre-screen so that you don’t waste your time (or the applicant’s).
A rental advertisement that outlines all your policies (number of persons in the rental, payment due date, late fees, pets, smoking, renter’s insurance requirements, etc.) will let an applicant know right off the bat whether they will qualify or not.
Be sure to incorporate these policies into your lease agreement as well, in order to prevent misunderstandings down the line. If they’re still interested, meet them in person at the property. Talking to them and getting a sense of their behavior will give you an indicator as to how respectfully they will treat your property.
However, first-impressions alone doesn’t tell the whole story. Checking their credit, criminal and eviction history gives you a well-rounded view of who they are, their ability to pay, and suggests whether renting to them is a risky move. Finally, you’ll want to check references and ask to see current pay stubs to ensure that their salary is high enough.
Whether you choose to qualify or deny an applicant, it's always good to have clear, prompt communication with all of your prospective tenants. Once you have found an applicant that is the right fit for your property, reach out to them as soon as possible to let them know they’ve been approved. Hold off on rejecting your second choice applicants until you have confirmation that your first choice is still interested. In many cases, you can tell the remaining applicants that you’ve decided to go with a different applicant.
SmartMove combines the powerful data and analytics of TransUnion to provide you with a quick and reliable tenant screening service (including a credit report, criminal report, eviction report, ResidentScore and leasing recommendation), so you can make more informed screening decisions in less time and find the right fit for your rental property.