Tenant Screening

Tenant screening companies are companies that collect information about potential tenants and provide them to landlords and property managers as a way of ensuring that the tenant has the ability and willingness to pay the rent on time, and to ensure that the prospective tenants are not criminals or disruptive, which the landlord could be liable for. Disruptive tenants may be noisy, or cause damage to common areas, or may be a danger to others in the neighborhood.

Local renting license ordinances may require the use of tenant screening companies or criminal background checks to help maintain a crime-free neighborhood, and may hold landlords liable for the action of tenants.

Tenant screening companies first became widespread in the 1970's, when technology, particularly the Internet and databases, allowed the cost-effective storage and dissemination of information. The cost of this technology has continually declined, making tenant screening more affordable than ever.

Sources and Errors in Tenant Information

Article continues below this space.

Tenant screening companies collect information from credit reports, court records of evictions, bad check reports, state courts, utility companies, and police blotters for information about potential tenants. Most will also verify social security numbers, employment and employment history, and previous landlords. They may also check the National Sex Offender Database and terrorist databases for more information.

In checking criminal records, some screening companies may use states' Criminal Offender Record Information database (CORI), but others use the police blotter, which is public information, and is available at less cost than CORI records. The disadvantage of the police blotter is that there is no record of the disposition of the case, so if someone was charged with a crime, and later acquitted, or the charges were just dropped, that person's name would still be in the records.

People with common names may also be confused with someone else. A major problem with the information collected is that much of it is wrong or inaccurate, and oftentimes, tenant reports include the information even when the tenant was the victim rather than the perpetrator. Screening companies may create blacklists of all names that they find in police and court records.

There is also some concern about the use of eviction records, which provides information on the property manager/apartment complex involved, the plea, amount owed, and the final disposition. A common complaint is that most tenant screening reports will include eviction reports even when the renter prevailed, although there must have been some trouble with a tenant if the landlord had to resort to eviction proceedings. Another common complaint is that it may cause tenants to refrain from voicing legitimate complaints for fear of tainting their records.

A major controversy with tenant screening is that whole classes of people may not be able to find affordable housing: people with past credit problems, poor rental histories, or criminal backgrounds. But others argue that the companies are just reporting information—they did not create it—and that the mere existence of tenant screening companies may motivate tenants to act better and manage their finances better to maintain a good report.

Tenant Screening Companies

There are many tenant screening companies that differ by size of agency, geographic region served, how they package and distribute information and other services offered.

To use a tenant screening company, the landlord or property manager submits the tenant's rental application to the screening company. The tenant record is sent to landlords via internet, fax, or phone. First Advantage SafeRent is the largest tenant screening service. Some screening companies, such as FABCO, also offer rental collection services to landlords. RentPort, Inc. is owned by TransUnion, a major credit reporting agency.

Most agencies combine tenant information from public sources into 2 or 3 different package levels. For instance, CreditLink charges $13.95 for a basic check that includes credit report, social security, address, and employment verification, public records and bad checks. For $34.95, it will also add a criminal background check and a terrorist check. The prospective tenant usually pays for this report by paying an application fee.

Many tenant screening companies are offering a risk prediction score, which is simply a number, like a credit score, that is calculated based on the information contained in the tenant screening company's database. The risk score allows landlords and property managers to decide quickly on prospective renters. However, because the algorithm to calculate the score and the information on which it is based differs among companies, there could be wide variations in this score for any particular tenant. This risk score would only have some utility as a way to compare different tenants using the same company.

Legal Requirements of Tenant Screening Companies and Problems That Tenants Have in Correcting Mistakes

Article continues below this space.

Tenant screening agencies must comply with the Fair Credit Reporting Act (FCRA), which allows you to examine any information held by a consumer service bureau. You can ask to correct inaccurate information, and the bureau has 30 days to respond, either by correcting the mistake, or by explaining why it feels that it is accurate. The 3 major credit reporting agencies have a central website that allows you to look at and correct or dispute any information contained in your credit files. You are entitled to a free credit report from any agency every year.

However, most tenant screening companies keep a proprietary database consisting of the information that they have collected from both public sources and from rental applications, and will often refer to what they have in their own databases, since they don't have to pay for this information. But this makes it difficult for the tenant to correct any mistakes.

The Fair Housing Law requires that landlords provide a written notice of denial to rejected tenants, and the reason for the denial. However, many, if not most, property managers and landlords are not aware of this. The FCRA requires that landlords or property managers notify the tenant of any of the following actions:

  1. that the application is denied;
  2. requiring a larger deposit than would be required for another renter;
  3. charging a higher rent than what would be charged to another renter with a better record; and
  4. that a co-signer is required.

Although landlords would have to inform potential tenants of the last requirement, it is unlikely that the 1st 3 requirements would be divulged by housing owners, even if they knew about them.

Findings of Tenant Screening Companies by the Minnesota Government

In 2004, the Minnesota Housing Finance Agency and the Fair Housing Implementation Council published a report, based on interviews of tenant screening companies and professionals who worked on behalf of tenants in the Twin Cities metropolitan area.

Of the people who responded to the survey, 72% of the property managers use tenant screening agencies while 28% did not. Almost 70% screened on their own whether they used a tenant screening service or not. Half of the property managers verified income and employment information and 2/3 checked rental references on their own. Almost 2/3 of the property managers stated that the most important information was criminal history and eviction records.

The most common mistakes in the reports were information that didn't belong to the tenant, outdated information, and errors in credit reports. The report also revealed the difficulty of correcting errors in the tenant screening reports. Many tenants complained about the amount of time and effort it took to correct mistakes, and that the tenant screening companies were often not responsive, a complaint that is often heard about credit reporting agencies.