A guide to tenant credit checks and referencing
In the UK, 92% of landlords reference their tenant. For private landlords, tenant reference checks and credit checks are key to safeguarding their rental property. Landlord credit checks can provide peace of mind that a prospective tenant can afford to pay the monthly rent and has a history of paying bills on time.
Why do landlords run tenant credit checks?
Landlords should be vigilant and seek to find out more information about who they are considering letting their property out to before giving them the keys and starting the tenancy agreement. Landlords run UK tenant credit checks to minimise the risk of rent arrears and other tenancy issues.
Naturally, landlords will want to take steps to help ensure they will be paid rent on time. Once a tenant is in a property, it can take a while to repossess the house and evict the tenant if they stop paying rent. Tenant reference checks and credit checks can reveal if a prospective tenant has had problems paying bills in the past.
What information does UK tenant credit checks and referencing reveal?
Tenant credit checks and reference checks usually include looking at a tenant’s financial and renting history, in addition to their current employment and income.. Background checks on tenants can also bring to light any criminal convictions and previous names, addresses and bad credits that have been hidden before renting the property to them.
Landlords need to get permission before running a credit check on a tenant. Landlord credit checks will provide information held on public registers, which will help confirm a tenant’s name, address and any history of County Court Judgements or insolvency on a credit report.
With tenant reference checks, most landlords ask for references from the tenant’s employer and current or previous landlords. These checks can help landlords judge prospective tenants on whether they think they’ll be responsible and trustworthy and able to afford the agreed rent.
Note: Landlords also need to undertake right to rent checks by asking tenants to provide their passport or immigration documents and visas.
Some tenants, like students, don’t have an income that is sufficient to pass normal affordability checks. In this case, many landlords accept a guarantor to provide an undertaking to cover the tenants’ rent in the event that they can’t keep up with the payments.
It’s recommended to also run a landlord credit check UK on guarantors to ensure they would be able to pay the rent if the tenant is no longer able to. This can further ensure you will be paid rent even if the tenant becomes unable to pay rent or refuses to.
In depth tenant reference checks
Most landlords opt to run tenant credit checks on their prospective tenants. Many online letting agents will now offer tenant reference checks to help you make informed decisions on if you should rent your property out to a potential tenant. The online letting agents at Portico Direct, for example, offer the following referencing service:
- Running a credit check to see if there are any adverse or hidden credit history
- Finding previous names and addresses that have been undisclosed
- Inspecting a default database, which could indicate if the tenant has had problems with being able to pay rent in the past
- Ensuring bank details are of a valid UK bank account
- Checking salary amounts through their bank account via Open Banking (where possible)
Once the referencing service receives consent from the tenant, their credit history is checked and anything that doesn’t look right is flagged. If the tenant is happy, some services can also verify their income directly from their bank account using the new Open Banking standards, which only takes a few minutes.
For tenants whose salary payments can’t be verified electronically, references from previous landlords or managing agents and their employer can be used. This naturally takes longer.
Jonathan Rolande, Director of House Buy Fast says “Proper checks on your tenant are essential to potentially save huge sums of money and many hours of work and worry – what’s more, an unchecked tenant could even land you with a fine!”
Quickly check prospective tenants credentials
It’s imperative that landlords quickly and securely check prospective tenants’ credentials. Make sure to do your research and ensure you’re letting your property to a tenant who will treat the property with respect.