Our UK landlord survey published earlier this year showed clearly that a UK credit check was one of the three most respected and trusted ways to assess a potential tenant. This is not surprising, as a credit check will tell a long story about the tenant’s ability to pay (how indebted are they? have they missed debt payments in the past?), a key consideration when looking for a new tenant.
Credit checks just don’t provide enough information on a tenant
However, whilst a credit check should be part of any tenant verification service package, it is not enough, and often not as useful as you would think. First of all, a tenant’s (and anybody’s) credit history could be negatively impacted by their level of unsecured debt (loans, credit card debt) in spite of the fact the person has always paid their rent on time. They may have debt but manage it well – however their credit history would, in that case, look poor as they are a higher risk taker – and at a higher risk of defaulting on debt. This would also imply a higher risk of not being able to pay their rent someday.
More importantly though, a tenant’s credit history does not say a lot about their current situation. It is generally several months old – and the tenant may have lost their job or have been unemployed for several months at the time the credit check is performed. Also, it might just be a bad tenant – paying irregularly or not taking appropriate care of their rental. Victoria Whitlock of the Accidental Landlord described such a situation in a recent article.
With large cities like London attracting numerous foreign tenants, a local credit history will, anyway, often not even be available. This makes it difficult to verify tenants who may actually be well suited, often even for a rental flat with a higher price tag, as they move to a new country as expats or for studies abroad. A foreign credit check, a guarantor or just an employer or previous landlord reference are, in such a case, way more telling than the inexistent or unreliable local credit check.
There could be fraudsters asking you for a credit check
Last but not least, tenants should also be careful when asked for credit checks by landlords. In large cities with numerous tenants competing for a home fraudsters will post fake listings. However, that apartment listing may well exist, in some cases, with fraudsters happy to organise a viewing. The crux of the property scam will, in this case, be the credit check the fraudsters will perform on all tenants applying to rent the apartment.
Interestingly, those checks will generally not be used for identity theft. Instead, they will allow the fraudsters to either charge the applicants a fee, or to earn a commission for having generated a lead for the credit checking agency. In either case, the applicant will have paid for a credit check for a rental which has never even been on the market. Needless to say, the tenants will never hear from the fraudsters again, or just be told that they have not been selected. Whilst the financial loss for the tenant is more limited than in the case of other scams, this type of credit check scam often remains undetected as fraudsters manage to get away with charging relatively small amounts to multiple applicants.