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How do credit reference checks work for landlords?

by | Dec 2, 2022

In the process of signing up a tenant to a new property, it is common for a landlord to undertake a tenant credit check as part of tenant referencing which is an extensive check that gives an indication of how risky that tenant is for the property. 

This is extremely important because if a landlord doesn’t conduct these checks then there is a chance that the landlord will fall into rent arrears which won’t help the landlord as they may have additional costs like if they are repaying a buy to let mortgage or keeping up with general utility costs of the property.

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What is a tenant credit check?

A tenant credit check may also be called a tenant background check. As suggested by the name, it checks the credit score and the credit report of the tenant. This is great for a landlord because it shows straight away if a tenant has any debt and it shows the recent history of the banking information of the tenant too.

Perfect for making a decision about the risk to the tenant and whether to let the property to the tenant or not.

A tenant checking their credit card before a tenant credit check

How to conduct a tenant credit check as a landlord

In order to conduct a check as a landlord, the first thing you must do is gain permission from a tenant in writing who wants to move in by collecting their personal details. You will also need to sign up and pay an ICO data protection fee if you want to go through this process to show you are compliant with GDPR as a letting agency or a landlord.

Next, head over to a tenant credit check website such as this one where you can enter the tenant’s details after you have created an account. Alternatively, you can use the tenant screening service but this follows a slightly different process of the tenant doing the screening first and then providing it to the landlord.

However, the costs associated with this process can be provided by the landlord if this is agreed upon in writing. Overall, there are a few tenant credit check agencies and three providers of credit scores in the UK that allow users to register and conduct a soft credit check. 

This includes Experian, Equifax and Transunion. Each agency provides a different score but they are all influenced by the same variables so if your score goes up on one platform, chances are it also went up on another one. For a detailed guide on how this works read our guide on credit score

What influences a tenant credit reference check?

There are a few variables that influence the credit score of a tenant. These can be things that take a while to show up in a score because they take time to build up but they may also include things that improve a credit score a lot quicker, almost instantly.

The factors that influence the score include:

  • Debit or credit card payments paid on time
  • Registering to vote with the government
  • How many bank accounts have been opened
  • The length of time credit or debit accounts have been open 
  • How often a tenant has moved address recently
  • Any financial associations you may show

You can check your credit score if you are a tenant by signing up for software like MoneySuperMarket here and monitoring your score as you try to improve it if it is bad. A landlord may also tell you what you can improve on after they have conducted a tenant credit check for you if you are denied from renting.

What does a credit reference check show?

A tenant credit check, even in a soft search which is a less intrusive search than an otherwise hard check, will still tell a landlord quite a lot about your financial history as a tenant. For example, landlords will be able to see any insolvencies you may have had as well as past bankruptcies. On top of this, the check shows if the address given by the tenant matches as well as any previous addresses.

A landlord analysing a tenant credit check

Sometimes, especially for properties that have higher rents, a landlord will want to conduct a hard tenant credit check. This check shows a lot more information and may show things like the bank accounts you do have, if there are any current overdrafts or debt on any of your cards and also if you have had any other credit checks recently whether that be from another landlord or due to taking out other loans.

In a case like this, a landlord must always tell the tenant they are going to conduct a hard check because this can have implications for the tenant down the line. For example, if the tenant conducts a lot of hard checks in multiple successions, it may show they are desperate to move into a property or desperate for credit which can negatively impact a credit score.

As a result, most landlords stay away from doing a hard credit check and will only look at your credit score amongst some other basic information.

Can a tenant take a look at their own credit report?

Yes, a tenant can easily take a look at their own credit report and in some cases will have to as the landlord will ask the tenant to conduct the check themself and then provide evidence the check was conducted to them.

In addition, it doesn’t have to be the case that you’re about to move into a property in order to take a look at your credit check as this can be done at any time and there is no harm in it if it is a soft credit check. 

Simply visit one of the credit reference agencies and visit their website or download their app to find out what your score is. It should be made clear through their platform what a tenant can work on and what it is likely to be that stops them from gaining access to the property they want to rent. Visit the Transunion website here for example if you’re thinking about signing up.

How can a tenant make sure they pass a credit check for renting?

If a tenant wants to pass a credit check for renting they should follow any advice that is generally given for improving a credit score anyway. This can include making sure all debts are paid off, signing up to vote, paying a direct debit every month and generally being conservative with the amount of debt they take on.

A well as this, it may be beneficial to try to rent out a property that is slightly lower in rental payments if a tenant has an average or bad credit score but it is clear that the tenant has a good rent affordability, then the landlord may grant the tenant permission to rent the property on the basis that their salary far exceeds the rental payments for the property.

Why should landlords do tenant credit reference checks?

It is in a landlord’s best interest to do a tenant credit reference as part of the general tenant referencing they would do anyway as they bring a new tenant into a property.

If the background check of a report comes back to show the tenant a landlord is checking is in debt or they have failed to pay for bills in the past, this is a good indication they may fall into rent arrears in the future and the landlord can disregard the tenant.

A tenant in debt that failed a tenant credit check

This prevents a landlord from having to evict a tenant in the future if they fail to pay as this is a troublesome process which could take months if the tenant is difficult. Even if the landlord issues a section 8 notice which usually grants the landlord permission to evict a tenant within 2 weeks, they would have to go through the process of having serious rent arrears and the hassle of giving notice of repossession.

How long does a tenant credit check take?

Tenant credit checks are quick to undertake. It is just a matter of going to a relevant website, paying any fees that are eligible to be paid and then taking this information as a landlord and deciding on whether it shows the tenant is suitable for the property or not.

If a landlord wants to conduct a harder check, this may take a bit longer and the landlord will definitely have to inform the tenant about what they are doing with their information and the potential impacts of doing a hard check.

How much does a tenant credit check cost?

A soft credit check will typically cost around £30 depending on the type of credit referencing agent you go with. Some letting agents may also be able to outsource it for a cheaper rate but still conduct all of their information in house so the data is kept safe.

It is vital to note that you cannot charge a tenant for this service as this will be a prohibited fee that you charge a tenant under the Tenant Fee Act of 2019. If you’re not sure about this legislation, read more about how tenant fees work before making any charges like this to a tenant to stay on the right side of the law.

If you make a mistake and charge a tenant a prohibited fee twice within a five month period, depending on  the local authority, this may be viewed as a criminal offence that could mean you face jail time.

Is there a minimum credit score to become a tenant?

There is no minimum credit score for the government or even a recommended one by landlord associations that a tenant should have. Instead, it is up to the discretion of the landlord in order to bring a tenant into a property.

This is especially true because some landlords, especially those who are landlords that don’t work with letting agents, do not conduct credit checks at all. Instead, they will rely on things like bank statements, landlord references and employment history to make their mind up.

How to deal with tenants with a bad credit score

For some landlords, a bad credit score is enough to disregard a tenant and look for a new one, not deeming it worth the risk of trying to house the tenant because of the complexity of evicting a tenant that doesn’t want to or cannot pay rent.

A tenant with a bad credit score in a tenant credit check

Also, it is often confusing that tenants have to have a similar credit score applying for a room to rent rather than if they were applying for a mortgage but in reality, landlords rarely use credit scoring in a similar way to a lender and it is only one of the many ways in which a landlord makes a decision on a tenant. Nonetheless, there are a few things you can be aware of to still mitigate the risk you are taking on as a landlord.

Find out as much information as you can

First of all, whenever a credit check comes back poorly, there may be a reason for this that you are initially overlooking as a landlord. It could be that a tenant doesn’t have a lot of debt but they simply haven’t had the time to build up a good credit score due to being a new citizen or a younger tenant.

Finding scenarios like this is vital to make sure you aren’t getting rid of good tenants based on one piece of information like a tenant credit check that isn’t the most conclusive piece of data.

Ask for a landlord reference

Landlord references are quite reliable. Especially if a tenant has lived in a property for a long time. The Longer a tenant has lived in one address previously, the more credible the landlord reference is if they are able to get this reference in writing from that landlord who had the tenant in their property for a long period.

Ask for a guarantor

Asking for a rent guarantor is common for high risk tenants such as students for example. They are high risk because they are unlikely to have a full time income and they wouldn’t have a passing tenant credit check. As a result, it is quite common for a tenant who is a student to have a guarantor because of reliability the tenant has to pay the rent.

Should a landlord credit check a guarantor?

In the process of finding a guarantor that is suitable, the landlord may also credit check the guarantor of the tenant. This is completely up to the landlord. If the landlord does choose to conduct a guarantor credit check, they will have to collect the information of the guarantor, inform them they will be conducting a check in writing and pay an ICO data protection fee in the same way.

Charge a larger deposit

Also common with tenants who do not have the right income in place in order to pass a standard rent affordability check is asking tenants to pay a larger deposit. However, no matter what, deposits cannot exceed five weeks of rent under legislation surrounding security deposits.

The deposits have to be protected in a tenancy deposit scheme so the tenant is able to ask for the deposit back and the landlord not being able to withhold it unlawfully if the tenant is shown to have complied with the terms of the agreement to get the deposit refunded.

How Lofti conducts tenant referencing

Lofti is the first three-in-one property management software. As part of an expertly curated letting and tenant onboarding process,  landlords are able to take qualified and automated leads from online listing platforms such as Zoopla and effortlessly arrange viewings and request holding deposits as a tenant gains interest in a property.

Not only is the tenant referencing process streamlined through the platform but the referencing process makes sure tenants are rent guarantee insurance compliant. This is perfect to get additional security on the rents of your property on top of completing a tenant credit check.

If this is not enough, the rest of our software conducts property management which ensures the maintenance of a property, making sure the property is compliant, rental statements are up to date and business analytics of your property portfolio are continually tracked!

Lofti property management software that does tenancy referencing

In conclusion

Overall, tenant credit checks are important for landlords so they can confidently rent out their property to those who are interested without feeling like their tenant will stop paying rent or they will fall into debt.

It provides a legitimate, ethical and accurate way for a landlord to make sure the tenants in their property are up to a certain standard. So, as a landlord, it is advisable that you conduct tenant credit checks but you also follow the rules in the process to stay on the right side of the law.

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andreas gerazis

Andreas Gerazis

Experienced landlord

Andreas is a certified landlord with extensive knowledge about the UK property market as he has been actively investing for half a decade. Founder of the first three-in-one property management software, Lofti Proptech, Andreas has a brilliant understanding of the details surrounding what it takes to grow and run a thriving property portfolio.


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