Tag Archive for: Tenants

Can I Check My Credit Score Without Hurting It? Yes, But….

Not All Credit Checks Are Created Equal! Protect Your Credit Score

Here’s How to Check Your Credit Without Hurting It

Did you know that too many credit checks can lower your overall credit score? If you’re applying for a phone, a mortgage or an apartment, there are a few things you can do to protect your credit in the process.

Hard & Soft Credit Checks

The first thing to understand is that not all credit checks are created equal. There are “hard” and “soft” credit checks. A “hard” credit check affects your score negatively, docking somewhere around 5 points from your overall score (with Equifax, for example). The more “hard” credit checks you do in a small time-window, the bigger the amount of penalty points. The idea is that someone who does lots of credit applications in a short time is desperate for credit. As a result, you are penalized for too many hits to your credit in a short time. The credit rating agencies do not care that you may be shopping around for a mortgage. Because they don’t take this into consideration, you need to avoid to many “hard” hits to your credit score.

“Soft” credit checks, on the other hand, do not affect your score.

How can you know the difference?

Most third-party credit checks are “hard”. This means, when a landlord pulls your credit it will affect your score. Same thing for a credit card-, cellphone-, or mortgage application. If you sign a consent form for a third-party to check your credit, most likely it will have a negative impact on your score.

Some third-party systems are able to do “soft” credit checks, but the information provided in these checks is less thorough. This is why most companies prefer “hard” checks. Also, most lenders, landlords and phone company employees have no idea how the credit checking system actually works. They simply don’t know what their checking up on you is having a negative effect on your rating.

So, how can you be sure what type of check is being run?

How Can You Protect Yourself & Your Credit?

  • Make sure you ask the third-party to provide some kind of documentation or guarantee as to what type of check they’re running (hard or soft). If they’re running a hard check, they should be able to tell you how many points you’ll lose as a result.
  • If you’re shopping around for a mortgage, loan or apartment, make sure you get the landlord, banker or broker to tell you at what point they will hit your credit. Lenders can give you a quote without running a credit check. As you’re shopping around, make sure you do comparison shopping without a credit hit each time.
  • Check your own credit and disclose it to the interested party. In Canada, a person is allowed to check their own credit without affecting their overall score. TransUnion and Equifax are the two credit rating agencies and they will provide you access to your own credit report for a fee. This helps when you want to check your credit rating for your own information. Most lenders, however, won’t accept a report you pulled yourself. (Photoshop anyone?)
  • This is where third-party sites like http://www.backcheck.net come it. They allow a prospective tenant to request (and pay for) their own credit report, and then share it with a landlord. See the subtlety here? You’re requesting your score, so there’s no negative impact. The great thing about this is that both parties benefit: the landlord gets a third-part copy of your credit report (and so doesn’t have to worry that you doctored it with Photoshop), and you get to protect your score. The downside: it’ll cost you about 70$.

Landlords, Brokers & Investors

Landlords, as a courtesy to your tenants, make sure you know what kind of credit check you’re running and inform the applicant. At my firm, we now give our tenants a choice of which type of check they want. We can run our standard “hard” check for free as part of our application process.

If the tenant wishes to use a “soft” check instead, we refer them to http://www.backcheck.net/tenant-screening/residential/tenant-share.html and require them to assume the cost. Third-party sites like www.backcheck.net are available across the US and Canada. All a landlord needs to do is fill in his or her email, and then send the application to the prospective tenant. He or she then receives a copy of the report in their email inbox.

Tenants & Borrowers

Be warned: lenders and landlords are pretty ignorant about the kinds of credit checks they run.

I was! This issue came to my attention because an investor-client of mine did too many simultaneous mortgage applications and almost wasn’t able to qualify for financing because his credit score tanked! I did some research to understand how credit checking works and figured out how to help others avoid this situation in the future.

As a result, my property management company started offering a third-party “soft” credit check option very recently. Just because a lender or a landlord is a professional, doesn’t mean they understand the ins and outs of the credit checks they are running!

So, investor, tenant and buyer: as you go through various application processes, make sure whoever is handling your credit knows what they are doing. If they sound shaky, refer them to this article 🙂

Maybe they’ll learn something!

What to do about problem tenants?

The most popular question my clients ask me is: “What can I do if I have problems with my tenants?”

This issue is so pressing in the minds of would-be investors that it’s the fear that prevents them from taking the plunge into the world of property investing. As a property manager and investment real estate broker, I’ve seen my share of problem-tenants! I have lots specific case-by-case advice for specific situations.

But… and it’s a big but… I’m going to answer this question without answering it!

Let me clarify with an analogy. If you own a nightclub, and you want to know: “What should I do if a fight breaks out?”

My answer would be: “Maybe you should hire a good bouncer so that problem-people don’t get in and start fights in the first place.”

My answer about problem tenants is the same. Instead of giving strategies to solve the million-and-one issues problem-tenants will create for you, limiting their access to your property. Manage problems by having rental practices that screen out the problem-tenants before they get a chance to cause problems!

This is the best advice I can give new investors, or investors hoping to build their portfolio.

Here are a few Do’s and Don’ts for winning tenant screening:

Do : 

  • Always always always do a credit check. This is the single most important piece of info you will get! If I had to, I would base my decisions solely on credit reports. People with bad credit don’t always end up not paying. With experience, I’ve learned, however, that they tend to be the authors of most tenancy-problems.
  • Always call the previous owner. Don’t just ask if the candidates paid on time. Ask about cleanliness, maintenance requests, politeness and any other issues.
  • Always call their employer. Find the phone number of HR online.
  • Always do a criminal background check and a check with your local rental board. Most rental boards have a platform on which you can consult decisions rendered under their jurisdiction. You’d be surprised :/ !!

Don’t :

  • Be fooled by a good first impression. Always, always do your due diligence when renting to people. Seeming nice for 15 minutes is easy. Living life responsibly, less so. You’ll be entering a long-term relationship with your future tenants. Don’t base your decision on a good first date!
  • Call the numbers given to you by the candidate on their application form. Look up employers online. Check that the name of the person the candidate gave as a present landlord matches the city information as to who owns the property. (This information is available online).
  • Be sweet-talked into accepting big deposits or additional months of rent to make up for bad credit. It might look seductive, but once that money is gone, you’ll still have questionable people in your unit.

When in doubt, consider hiring a realtor or a property manager to rent vacant units. They’re professionals at this and can save you a lot of headaches. My agency will even coach new owners through a first rental if they ask us.