Last Updated on 2023-04-18 by Tom
“Credit check” is a comonly applied practice by many landlords in rental applications. In this blog, we will share the traditional way to conduct it and the new way (Culfidant way) to do it, their pros/cons, and the best practice we recommend in Culfidant community..
First of all, is the credit check necessary, and why?
The answer is yes. The reason is simple: on the surface, you are finding a tenant to rent your rentals, but in reality, you are likely to find a qualified partner who will likely take care of your home and pay rents on time, so that you will fulfill your mortgage commitment to the bank to pay them on time with no default. And just like banks check your credit record and score to make sure you have a great track record to ensure there is little risk to their investment, you should do the exact same if you treat your investment as seriously as the bank does.
Furthermore, by conducting the credit check and treating your investment as (not just “like” a business), the potential prospects of tenants will also feel secure and peace in mind knowing they are dealing with a well-run business that will likely handle the future relationship in a professional manner, which is going to be a win-win for both sides in the long run.
There are two ways to conduct credit check. The first one I call “Traditional way” and the second one is called “Culfidant way”. Below is to illustrate how each works.
Traditional way of credit check
A landlord may indicate in their ads with the word “credit check required,” followed up with a proper format in the application form for the applicant to give their authorization to conduct the credit check.
The minimum requirements to conduct an online credit check are three:
- the legal full name of the applicant,
2. the date of birth, and
3. the current detailed address.
If the applicant has lived at their current address for less than six months, you may need them to provide their previous address and the duration of their stay.
There are many online websites you may use to conduct the credit check as a landlord. For example, http://Frontlobby.com will ask you to register first with the proper information provided. Once registered, you may conduct the credit check on an applicant in less than a few minutes, as long as you have the proper information provided.
For more online sources conducting the credit check as a landlord, simply google the key words “tenant creidt check websites in canada”, you should be able to find them and select based on what you need.
Once you have both credit score and up-to-date reports, the key things you should check are
01). The credit score – ideal score should be higher. However, if it is too low (say, less than 600) it is important to find out why.
02). The payment history – you are checking a consistent payment history with no default, delinquency, bankruptcy, collection, etc.
03). The credit utilization ratio – it is preferable to have at least moderate (if not lower) credit utilization ratio indicating the prospects are likely not living beyond their means.
Sometimes, the tenants may already have an updated credit report (less than 3 months) and score. This is a good sign indicating that the tenants are likely well-prepared and well-organized.
However, this method has a few downsides
01). it is a hard check on the applicant, which could cause a negetive impact on the applicant credit score and should to be avoided if possible.
02). Some prospects may not be willing to authorize such a check for very good and legit reasons – while it is up to you to decide waiving this important process or not (which we do NOT recommend), you could see a lot of resistance and likely longer renting duration to fill your vacancy.
Culfidant community way of credit checking method
Thanks to the popularity of the internet, in recent years it has become feasible for anyone to check and build their credit score and history anytime online. There are a few websites available for people to pull out their own credit score and report in less than 5 minutes, 100% free. To name a few:
- Borrowell
Borrowell offers access to a free Equifax credit score and credit report. There are no fees, and your credit score and report are updated weekly. Learn more about them in this Borrowell review. - Credit Karma
Credit Karma provides access to free credit scores (TransUnion). Your credit report is also provided. - Loans Canada
This company offers access to your free credit scores (Equifax) on its website. You can also use the platform to compare loan rates at multiple lenders with no obligation to apply for a loan.
For more similiar options, simply google “websites to check my own credit score and report in candada”.
Based on mutual trust, here is what we recommend to practice to conduct the credit check on a rental application.
Firstly, in our application form, we will clearly indicate that we are expecting the credit rating and report to be provided by the applicant once they submit the application forms.
Secondly, once the application form is received, an email with the manual on how to obtain a free credit score in less than 5 minutes will be sent to the applicant to follow up.
Once the proper file is received, we will process the application accordingly.
There are a few advantages compared to the traditional method:
- Landlords set the right tone to start a relationship based on mutual trust.
- There is no hard hit on the tenant’s credit report, regardless of the result of the application.
- Better yet, it is free for both sides, and quick too.
- More importantly, it is a simple way to gauge the seriousness of the application – the ones who are serious about their application shall have no issue to provide the proper file promptly. If not, everyone then moves on.
One concern I heard is fraud – what if someone makes a fake report? After all, nowadays, it takes very little to create a perfect yet fake report and score. That is why the credit score/report should be one of the few key factors to evaluate the application instead of the only one. In the Culfidant community, we apply the so-called “6-factor-18-Score” system to check from various key aspects to make sure that A+ homes, A+ landlords, and A+ tenants are matching to share the joy of renting for a long time to come.
In short, we recommend conducting the credit check for every single application via the so-called “Culfidant-self-credit-check” by the applicants to take advantage of the common desire of building mutual trust and, facilitate a great start for a matching A+ relationship to thrive for a long time to come.
– Oringal reference – click here