A Guide to Credit Reference Checks for Landlords

By 8 min read • April 1, 2021

A credit reference check is where an individual’s credit history is checked. For landlords, this usually gives an indication of whether the prospective tenant can afford to take on new debts. If you’ve ever applied for a loan, a contract phone or a mortgage, chances are you’ll have had credit reference checks carried out on you. If you’re a landlord though, you should also be carrying out these checks on your tenants.  

In this post we’re going to explain how and why to do credit checks on tenants. You’ll also learn how much tenant credit reference checks cost, what to do when a tenant fails a credit reference check, and anything else you need to know to be able to carry out this all important check.  

What is a Credit Reference Check? 

In the UK there are three credit reference agencies – Experian, TransUnion (Previously CallCredit) and Equifax. These agencies collect data on each person, especially financial data. This information is used to compile a credit report, which details how someone has used credit in the past and how much debt they might reasonably be able to afford. The report can also reveal whether someone has any CCJ’s or any fraud convictions.  

Credit reference checks are usually requested by banks and other financial institutions ahead of giving a loan or credit card. This practice makes sure that the banks are lending responsibly and that the person borrowing the money can afford re-payments. Carrying out credit checks when renting out a property will give you peace of mind that your tenant can afford the rental payments. Credit reference checks might also be requested by utility companies and any other company that expects regular payments. This is to make sure that the person in question has traditionally paid their bills on time and that they can afford to do so.  

How is a Credit Reference Check Performed? 

The data held on file by the credit reference agencies is used to assign each person a score that reflects how much of a risk it is to lend money to the person in question, in this case the tenant. This is known as a credit score. The score is based on how much credit the tenant currently has, whether they’ve made re-payments on time in the past etc. Each credit reference agency has its own scoring system, so the credit score might look different depending on who generated it, but it should all be based on the same (or similar) data.   

What Does a Credit Reference Check Show? 

A credit reference check shows a lot of financial information, but the actual data that landlords can obtain when carrying out a renting credit check will depend on what kind of check you carry out. A soft credit search on the tenant in question will show less information than a full credit check or a hard search. A full credit reference search will show:  

  • Name and date of birth 
  • Address and previous addresses 
  • Current account details and overdraft 
  • Any credit taken out 
  • Whether the person is on the electoral register 
  • Financial links to other people 
  • Fraud convictions 
  • If the person has been a victim of identity theft 
  • Public records – like CCJs 

Can you Look at Your own Credit Report? 

While not necessarily related to how and why landlords should conduct credit reference checks, it’s a question you’re sure to ask. Usually, when discussing credit reference reports and the data they hold people want to look at their own and make sure they are correct. You can indeed look at your own credit report and you are encouraged to do so. This allows you to check that the data held on file for you is correct, highlights any issues you might have getting credit, shows you if there have been any credit checks on you etc. If you’re unlucky enough to be a victim of identity theft, your credit report is one of the first places you’d notice it. 

Some of the credit reference agencies will charge you to look at your report and some have a paid for subscription service, but it isn’t necessary to pay. Credit Karma have a free consumer service and Experian and Equifax offer a 30-day free trial, but you have to pay afterward. Your Credit Karma credit reference report is updated monthly and they pride themselves on being free forever. Once you’ve signed up, you’ll receive an email each month reminding you to check the latest updated information. Unless there’s some reason you need the report to be updated more frequently or there are some features on the subscription services you really need, the monthly free report will be enough to keep your eye on things. Just to clarify, you can only use these kinds of services to look at your own credit information, and you’ll need to use a different method to conduct tenant reference checks.  

Tenancy Credit Checks 

When a landlord rents out a property, they need to know that the tenant they are letting to can afford the property. This is where tenant referencing credit checks come in. Tenancy credit checks ensure that the tenant has a work history, a good payment record, and is able to afford the monthly rental payments. Both the tenant and the landlord must be satisfied that the rental payments are affordable.  

Why Should Landlords Carry out Credit Reference Checks? 

Landlords should conduct renting credit reference checks on any prospective tenant. This check will confirm that the bank details given to you by the tenant are from a genuine account. It will show you if the tenant pays their bills on time each month and will detail any late or missed payments over the last few years.

Credit referencing will verify whether the tenant has any debt and how much that debt is. If the tenant has any CCJs or fraud convictions you’ll spot this in the report, and it will also verify their previous addresses. Harder, more detailed tenant credit searches will also look for undisclosed credit history linked to the tenant’s current or previous addresses.

Credit Referencing for Tenants

Once a landlord obtains the credit reference data listed above, all of this is useful to help them decide whether or not to rent to a tenant. If the tenant has a history of paying bills late or not at all then you might not want to offer them a tenancy. If the tenant has given you their address history and it differs from the credit report, it’s wise to find out why.  

How to Conduct a Credit Reference Check on Your Tenants

To conduct a credit reference check on potential tenants, landlords will need to use a third party. Because the data is sensitive only certain companies can request access to it. The tenant’s data is protected under the Fair Credit Reporting Act (FCRA). Banks and financial institutions are often able to carry out credit reference checks as lenders. In most instances a company will need to be authorised or regulated by the Financial Conduct Authority before they can request credit information.  

How to credit check a tenant?

Letting agents will usually be able to conduct a credit reference check on behalf of the landlords if they’re using their services, either on a fully managed or tenant finding basis. In most cases letting agents will also use a third party to carry out the renting credit check on a tenant.   

It isn’t difficult to find a third party to conduct a renting credit check on your behalf, a quick search online will reveal a number of third parties you can use. If you’re a member of the NRLA, you may find you can get a discount on tenant referencing credit checks. You can go through online letting agents like Open Rent or you can go directly via the credit reference agency, some of whom offer tenant credit referencing products.   

When using a third party to carry out a tenant referencing credit check, make sure you know what you’re getting for your money. As with all things prices differ and so do the services offered. Just because someone is offering a cheap credit reference check on your tenants, it doesn’t necessarily mean that’s the best option for you. Make sure you understand what the credit reference check will find out about the tenant before committing.   

Credit Referencing Checks for Tenants on Universal Credit and Housing Benefits

Renting to a tenant on benefits comes with its perks. You can get the rent paid directly to your account from the government meaning that there is a decreased risk of having to deal with disputes over late rent.

Whether a tenant on benefits comes back with a good or bad credit score, you can only refuse this type of tenant if your mortgage terms and conditions prohibit you from doing so. Be sure to check your buy-to-let mortgage conditions regarding tenants on universal credit or housing benefits.

How Much do Credit Reference Checks Cost? 

Costs of credit reference checks differ for landlords depending on how they carry out the check. If you use a letting agent you might find the cost of the credit reference check is bundled into the package you buy. This isn’t necessarily the cheapest way to conduct a tenant reference check though as letting agents will often tack on admin fees. If you’re an NRLA member and you go through them it may cost less than going directly through one of the referencing agencies. The cost will also depend on what kind of tenant reference check you conduct, a soft search will usually cost less than a hard search, but it will also give you less information.  

Landlord Credit Check UK

In general, the fee can be anywhere from £5 to £30 for a tenant credit reference check in the UK. Landlords should expect to pay around £15-£20 for the credit check. Any less than this and you should double-check that you’re definitely getting a comprehensive check on the tenant. Any more than this and you should find out what extra you’re getting for your money.  

Can Tenants Tell When You’ve Done a Credit Reference Check? 

Anyone can tell when you’ve conducted a credit reference check if they have an account with one of the credit reference agencies and keep track of their credit score. Tenants can sign up to any of the three credit reference agencies as mentioned previously. Signing up for these accounts will allow tenants to see what their credit score is and what data the credit reference agency has on them.

This information is useful for anyone who needs to monitor their credit score due to bad credit or anyone who just wants to keep an eye on things to ensure they’re not a victim of identity theft etc. Once you sign up, you’ll also be able to see if anyone, including landlords and letting agents, has conducted a check on you. 

Credit checking tenants

It’s important for landlords to obtain permission from the tenant before conducting a credit reference check. Most third parties that run renting credit checks will require written authorisation from your tenant before conducting the check. So yes, from this perspective, a tenant should know that you’re carrying out a check. If you carry out a check without a tenant’s authorisation, they may still know that you’ve done this and, in some cases, may be able to take legal action against you for doing so without permission.   

Letting to Tenants With a Bad Credit Score 

There could be a number of reasons why a tenant has bad credit. Their credit reference check may have highlighted that they have CCJs, which indicates that they’ve had problems making payments on time in the past, or alternatively they may just have a ‘thin file’. This can occur when someone has had very little credit in the past. This isn’t necessarily an indication of bad credit, it might just mean that the tenant is good at managing their finances and has never had to take on any debt.

It is wise for landlords to consider each case on its own merit. Bad credit isn’t in itself a deal breaker. If you’ve got a tenant with bad credit or one who just has no credit data and you’re worried about affordability you can ask for some bank statements to give you more of an idea if there is money coming in and how this is handled, and you can also ask for a guarantor. This is quite common in the case of someone who doesn’t have any credit information as the guarantor will be expected to pay the rent on behalf of the tenant if they don’t make payments, which acts as a bit of extra security for you. 

Should you Credit Check a Guarantor? 

Yes, you absolutely should credit check a guarantor.  

A guarantor is essentially responsible for making rental payments if the tenant can’t, for this reason you need to conduct the usual checks on a guarantor that you would on a tenant. If the credit report reveals that the guarantor is overindebted or has struggled to make payments in the past, you may want to request that the tenant uses a different guarantor.  

So that’s the end of our guide on landlord credit reference checks. Remember that you should look at each case on its own merit. A bad credit score isn’t necessarily indicative that a person isn’t reliable, and you probably shouldn’t ignore a credit report that shows a history of unreliable payments. 

Let us know if we missed anything or if there are any questions you’d like us to answer in this post, you can get in touch on Facebook or Twitter. 

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