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Credit Checks - Part 2. What to look for in a credit check

February 11th, 2015.

Topics: Landlord Advice

When assessing a prospective Tenants credit check there are key things that you want to look for:
 

  1. Does the credit file have more than 1 enquiry?
 
The very first thing to check is the number of enquiries, if there is only 1 enquiry and the age of the credit file is 0 months, then this is a strong indicator that an error has been made in either the name or the date of birth when loading the information. Obtaining a copy of the applicants ID will help avoid making such errors. The only other time you will see a 0 month credit file age is when the applicant has just arrived into the country to live, in which case you should obtain proof of residency.

 
  1. What is the age of the credit file?
This part of the credit check can tell you a few things, normally the older the age of the credit file the better overall picture you can obtain.So if you have a person who is 30 years+ and who only has a credit file age of a couple of years you would question why.This is especially common of women who have been recently married and have taken a new surname, so it’s always a good idea to check what their maiden name is and have Veda do a cross check on the previous name.At the severe end of the scale you have people who change their name completely in order to try and get a clean slate.
 
 
  1. Does the credit file have a substantial amount of enquiries?
While this alone may not be a reason to decline an applicant, it does tell you a bit about their history and whether they have a penchant for borrowing money.It may show that they could be heavily loaded with consumer debt that when combined with other negatives on their application like job status etc, could affect their ability to meet the weekly financial obligation of the rent.
 
 
  1. Is there any adverse credit?
This is the BIG one and we adhere to very strict rules about what sort of adverse credit warrants a declined application. For example, anything that appears as a default, collection or judgement that is from a lending institution or rental company is an immediate decline.A credit file that has a bankruptcy or no asset procedure on it is an immediate decline. Whereas a small default to a place like a telephone or power company that is a one off and has been paid, you may overlook so long as the rest of the application is strong.
 
 
  1. What is stated on the address history?
Do the previous addresses stated on the tenancy application match the previous addresses stated on the credit file? If not ask why. When assessing an applicant you want to check that the information provided is accurate and consistent.  Inconsistencies are a warning sign.

 
  1. What are the last 5 enquiries?

Having a look to see who the last 5 enquiries were made from and how long ago will tell you a bit about their current life. If you can see that they have several rental company checks in the last month this may be an alarm bell as to why they have not yet been approved. On the other hand you may find that the last 5 enquiries are spread over the last few years which is a good indicator of stability. Or you may find that they have been applying for mortgages and may only be looking to rent for a short period of time.

 
Credit checking is good industry practice and removes the emotion out of the decision. While every once in a while you may come across a good person who has just had a bad run, the majority of people who have bad credit history will likely prove to be bad rent payers. If you find yourself with an applicant who has adverse credit, but it’s not so bad that you would decline it, there are ways to minimise your risk. Offer them a 3 month fixed tenancy with a full 4 week bond, advise them that so long as there are no late payments and issues with care of the property, then they will be offered another 3 months with the same terms. After 3-6 months you should have a good idea of whether they will make good long term Tenants or whether you are better to end the tenancy and find fresh Tenants.
 

If you would like to speak to one of our experts about Tenancy selection and credit checks contact us today on (09) 4763433 for a no obligation chat.

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