New Credit Report Laws

Quick update on the tenant situation. We have found someone who appears to be a good applicant and are now in the process of processing their application. This person is actually a referral from our current tenants (who are breaking the lease), which is a testament to the value of not burning your bridges.

Probably the most important step in the process is running a credit check. I've written about the value that you can get out of a credit check before, and most every landlord advice column talks about the credit check. So imagine my surprise when I go on-line to run a credit check and I discover that the laws have changed. Shockingly, not one other blog had brought this up yet, so it caught me a little bit by surprise.

The change is in the Fair Credit Reporting Act(15 U.S.C. §§ 1681-1681(u)). Essentially the three big reporting agencies (Equifax, Experian and Trans Union) need more information before they dispense credit data. The change is supposed to deter identity theft, so it requires that businesses register themselves and submit to an on-site inspection. From my understanding this accomplishes two things:

1) They can identify that the users in question are legitimate businesses with a legitimate need to access credit reports
2) They can certify that the credit reports, once obtained, will be safe from theft

So, if you have an immediate need to run a credit check (like we do), what options do you have? Simply put, while you aren't allowed to access a full credit report, you can get a little bit of information on an individual through the typical credit report agencies. Specifically you can know discover what "grade" a user's credit is. 800-850 is an 'A+', for example. You won't get their actual scores, nor will you get any of the credit history.

Longer term, what do you have to do in order to get true credit reports? You will have to submit your place of work to an official third-party inspection. This inspection costs somewhere between $75 and $100 and must be renewed annually. When the inspectors arrive they will want to see:
- Proof of ownership of your rental properties (title)
- Proof of rental (rental agreements/applications)
- Proof of identity (license or passport)
- Proof of security. This means that they are looking that your credit reports are secure from your living area. I assume that if you had a properly locked office it would suffice. If you only handle electronic copies of reports, I would hope that proper password security would be satisfactory, but I don't know for sure.

If you are a smaller landlord and only need to run 1 or 2 credit applications a year, then this essentially increases your costs to $115 per credit report ($100 for the inspection and $15 for the actual report). A simple decision has just become much more complicated. Biff and I are currently in the act of reviewing our needs and whether or not we'd like to pay for an annual inspection.

I'm sure that Congress's heart was in the right place when they made this law and for all I know it'll cut identity theft down by 90%. But it's definitely causing headaches all over the country for small landlords that needed to run only a few credit checks a year, for legitimate business purposes.