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.


Vera said...

I remember this issue coming up for someone here in So Cal and the solution was to join a landlord group/association. You pay an annual membership fee and they run the credit checks for you - will probably save you a lot of money and hassle!

Chris Lengquist said...

I'm using a screening service (email me if you want a reference) and I was taken aback when I had to provide proof of ownership to a couple of properties I manage.

I would advise investors with 5 or fewer properties to use such a service. Just makes more sense.

Shirley said...

What good is a credit report when the reports have been falsified and the person with this falsified report
are being denied a change even when they have proof? Read more about falsified Credit Reports here
Falsfied Credit Reports

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rashid said...

The new law allows credit card companies are charging more fees limit, but now, consumers should opt for these plans, but consumers in general should be encouraged to do so, usually with the promise of reducing costs elsewhere, or lower interest rates.

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Guy Seeklus said...

While most landlords do check the backgrounds of prospective tenants, there are laws in every state governing what can be checked and what can’t. This is why you should ask a landlord what his or her background check consists of. You should know that all three of the national credit bureaus in the US offer tenant credit check to landlords. A tenant report is a lot like a credit report as it contains credit information. However, a tenant report also can include your criminal history background, driving record, employment history, entries on sex offender lists and more. And, it could even contain information obtained via personal interviews with your neighbors and former landlords. If you do not like what tenant credit check consists of a particular landlord uses, then simply don’t proceed in trying to rent from that person.

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