There are several ways landlords can handle the process of obtaining a credit report from potential tenants. "Small" landlords, like yourself, who are renting out extra bedrooms, just one unit, or a few properties, can simply ask prospective tenants to provide a copy of their credit report for your review. Checking references from a potential tenant's previous landlord(s) is also recommended. If they do not already have a credit report, potential tenants can go online to www.annualcreditreport.com to obtain one free credit report per year from each of the three national credit bureaus (Experian, Equifax, TransUnion).
"Large" landlords with multiple units for rent generally register with one or more credit reporting agencies and pay a fee to have access to a potential tenant's credit file. The landlord would first need to obtain written permission from the renter/applicant in order to access this information.
Consumer credit reports can be used to evaluate rental applications as long as landlords follow the provisions of the Fair Credit Reporting Act (FCRA). The FCRA is designed to protect the privacy of consumer credit report information and to guarantee that the information supplied by consumer reporting agencies (CRAs) is as accurate as possible. The FCRA requires landlords who deny a lease based on information in the applicant's consumer credit report to provide the applicant with an "adverse action notice."
An adverse action is any action by a landlord that is unfavorable to the interests of a rental applicant. Common adverse actions by landlords include:
* Denying the application;
* Requiring a co-signer on the lease;
* Requiring a deposit that would not be required for another applicant;
* Requiring a larger deposit than might be required for another applicant; or
* Raising the rent to a higher amount than for another applicant.
When an adverse action is taken that is based solely or partly on information in a consumer report, the FCRA requires landlords to provide a notice of the adverse action to the consumer. The notice must include:
* the name, address, and telephone number of the credit reporting agency that supplied the consumer report, including a toll-free telephone number for credit reporting agencies that maintain files nationwide;
* a statement that the credit reporting agency that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it; and
* a notice of the individual's right to dispute the accuracy or completeness of any information the credit reporting agency furnished and the consumer's right to a free report from the credit reporting agency upon request within 60 days.
The adverse action notice is required even if information in the consumer credit report was not the main reason for the denial, the increase in security deposit or rent, or other adverse action. In fact, even if the information in the report plays only a small part in the overall decision, the applicant still must be notified.
If you have questions about the FCRA or would like a copy of the act, call toll-free, 1-877-FTC-HELP (1-877-382-4357). You also can find the act online at www.ftc.gov/os/statutes/fcrajump.shtm.
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