Tenant Credit Checks
Credit checks are a crucial element of the letting process. It saves landlords the headache of dealing with bad tenants later on at a considerable expense.
One of the leading national tenant eviction companies, Landlord Advice UK, recently conducted a survey.
The survey revealed that for all possession claims issued under section 8 Notice for rent arrears, 73% of the landlords failed to perform credit & reference checks.
The survey also revealed 64% of these cases. The property was managed by a private landlord, i.e., letting agents not engage.
Most landlords and letting agents will conduct a credit check on protective tenants. If the credit report shows the tenant is elevated risk, then the prospective tenant has other options.
With COVID-19, many of us have been impacted, and that includes our finances. As a result, landlords are encouraged to explore other avenues with a tenant who has failed a check.
There are other options, and they may offer protection for the landlord should things go wrong.
The rental property owner may wish to take out a rent guarantee insurance. These are only offered if the prospective renter’s credit search results are satisfactory.
One of the crucial factors to consider is the prospective renter’s rental payments history. The financial history demonstrates the rental payments are regular payments as they fall due.
Credit Reference Agencies
The renter initiates the process by completing a rental application form that requests all the information required to conduct a credit check (CC).
The landlord or letting agent will use a credit reference agency that specialises in conducting (CC) on tenants.
However, a (CC) is a landlord’s consideration when letting a property to a potential tenant.
A credit report will check if payments on credit cards, bank statements, utility and mobile phone bills, personal loan, if any, have been paid regularly.
To pay bills on time is important as this too can affect the credit record.
This will determine if the renter has a bad credit score.
A (CC) will obtain your bad credit score; however, the credit check includes a previous landlord reference.
Suppose the credit limit on credit cards is close to its limit. In that case, most credit reference agencies will consider this as a negative signal.
Previous landlords’ reference would ascertain if the prospective tenant paid the rent on time and all monthly payments of rent were paid.
A previous landlord reference can be crucial as the landlord can clearly see the monthly payment of rent has or has not been paid regularly.
Suppose a prospective tenant has a good credit score. In that case, a landlord may still refuse to let the property due to a bad previous landlord’s reference.
A tenant credit report involves checking credit score, previous landlord references, employer references and will check if the prospective renter is on the electoral roll.
The common reasons why landlords may refuse to let are:
- The credit file shows the poor credit score (Late payments, CCJ, missing payments)
- Previous landlord references show the tenant missed payments of rent or failed to make payments on time.
- Not on the electoral roll
Family or friend guarantor
Letting agents and landlords often will consider renting property to tenants if they have a guarantor. Provided the guarantor credit report shows they have a good credit rating.
A tenant guarantor can be a friend or family member requested to sign a guarantor agreement. The guarantor agreement commits the guarantor to pay the tenants rent if they are unable to.
This includes legal fees and any damage the tenant may have cause to the property.
A potential guarantor needs to be aware that they are jointly responsible for paying the rent on the property and damages.
An alternative to a guarantor is offering to pay a larger deposit. However, landlords can only accept up to 5 weeks deposit due to the tenant fee ban legislation.
You could offer the landlord, say by way of example, pay 6 months advance rent. This makes the landlord feel safer for tenants who have a poor credit history.
Buy a guarantor
Suppose the renter does not have a friend or relative who can stand as a guarantor. In that case, there are several companies who, for a price, will stand as guarantors for the renter.
The British Landlords Association service provider Housing Hand is one of the companies to provide this service.
These companies will be asked to sign a contract or ‘guarantor deed’. They will require proof of identity and salary and require that you earn at least 1.5 times your rent.
If your rent is £700 a month, then you’ll need to be taking home at least £1000 a month after tax.
Defence for a tenant Guarantor
If the landlord or letting agent did not do their job properly, a guarantor could potentially defend a case to pay the tenants debt.
It is crucial the guarantor has been given all the relevant information before they sign the guarantor agreement.
The fact, a guarantor, signed a guarantor agreement is not necessarily watertight. The loopholes open to a guarantor generally used are:
- They signed the guarantor agreement but were not given the tenancy agreement, so they had no idea what they were standing guarantor for
- The letting agent or landlord failed to conduct an I.D verification on the guarantor. The information on the documents is not in keeping with reality.
Upgrade credit history
Another option is to improve your credit history and, while you do it, continue living in your current accommodation.
There is no rule of thumb about how long it takes to improve your credit history. Still, new information about your credit history is filtered through to its system.
It’s reasonable to assume that you’ll need approximately six to 12 months of new credit history to improve your score.
If you are already paying rent, your monthly payments to your landlord can be recognised via our online service. This record is added to your credit history.
Pay your rent in advance
The easiest way to circumvent the guarantor system is to pay your rent in advance, usually in a lump sum representing six and twelve months’ rent. It’s how many international students secure places to rent in the UK.
Renting in a shared house
Another way to sidestep the credit referencing process is to move into a shared house. A shared home that already has a tenancy running but whose tenants need to refill their ranks after someone has moved out.
Because all tenants in a shared house are responsible ‘in common’ for the rent. Assuming the other tenants agree, the landlord or letting agent may be happy to let you move in without credit referencing you.
Council bond guarantee scheme
Many councils, housing associations, and charities offer a bond guarantee scheme to back those most in need into the private rented property market.
The council will step in, agree to be your guarantor, and pay your rent if you cannot pay it, and foot the bill if you cause any damage to the property.
These schemes are set up to help those in danger of becoming homeless or homeless and secure a property within the private rented sector, so they’re not for everyone.
If the arrangement has been agreed with the lender, then it should not affect your credit file. However, you can ask the lender if their process will affect your credit score to avoid doubt.
There is a CCJ on my credit file that has nothing to do with me. What can I do?
Identity fraud is on the increase. Your identity may have been compromised, or someone has made an error. That has led to an adverse entry on your credit file.
You should contact the company or organisation that has entered the adverse entry, dispute it, and request them to remove it.
What causes a poor credit history and rating?
Overdue payments of rent or bills missed payments like credit card payments You have used credit cards to their maximum limit.
How do I correct or dispute information on my credit reports?
You contact the company who made the entry, request further information, and send them supporting evidence to demonstrate that the entry is incorrect. Ask them to remove the entry against your credit file. Then contact the credit reference agencies to amend their records accordingly.
How long does financial information stay on your credit report?
Generally, for 6 years. Unless the missing payments have been made and any CCJ (County Court Judgement) have been set aside.
What if my report says I’m not on the electoral register?
Contact the local authority and check if you are on the electoral roll or not.
What are the causes of a poor credit rating?
Credit reference agencies have made adverse entries against your name for:
- Unpaid personal loans or overdue payment
- Non-payment or late payment of credit card bills
- CCJ County court judgements
- Used credit cards to their maximum limit
How to rent with a poor credit history?
This blog explains all the options open to tenants who have a bad credit history.
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Author: Peter Ross firstname.lastname@example.org Date: 6th of July 2021
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