On the hunt for new tenants?

Few landlords would call the tenant screening process fun—but that doesn’t mean you should skip any part of it. That includes asking for credit references from your applicants.

If you’re already running a credit report for applicants, then you might wonder what the point of a credit reference is. Afterall, the ability to find so much information on the rental applicant by doing a simple Internet search would suffice, correct? Short answer, not necessarily. Let’s start with a definition of a credit reference for a tenant applicant?

Also known as a rental reference, a rental application credit reference is any information vouching for an applicant’s—you guessed it—creditworthiness.

Different landlords define “credit reference” differently, although the most common example of one is a tenant credit report from Equifax, Experian, or Transunion. This isn’t the only type of credit reference, though. Other examples of rental application credit references include:

    • A statement of assets, e.g., a bank statement
    • A letter from a former landlord
    • A letter from a service provider or institutional lender
    • The contact information of one’s personal reference, e.g., employer

Regardless of what form they take, the gist behind credit references is the same: they provide testament to a potential tenant’s reliability in making regular payments, taking proper care of your rental investment property, and being a good tenant, overall. And while you can (and should!) insure against your tenants defaulting on rent, you still want the best possible tenants in your rental units. Tenants who will pay on time, stay for many years, and treat your property as if it were their own.

 

What About a “Rental Reference”?

The term “rental reference” is similar, though often broader in its scope in that it’s generally used to vet a person’s character beyond their finances. That might be an employer who knows just how diligent or punctual their employee is, or it could even be a former landlord who knows whether an applicant is quick to complain about housing issues.

In this way, including rental references in the application to rent, can be revealing of a potential tenant’s renting behavior and history; for example, whether they’ve had cordial relationships or dicey dealings with past landlords.

While this personal type of reference is less definitive in verifying creditworthiness compared to a tenant credit report, that doesn’t mean you should ignore them.

Did you know that the top reasons for eviction are for non-payment of rent, damage or destruction to the rental property, and disruptive behavior? Getting rental references can be important in determining whether your rental applicant is not only credit-worthy but also one who will take care of your rental property investment.

Additionally, a good rental reference may assist younger rental applicants who may have a limited credit history, though they may be solid candidates otherwise. Just because an applicant is young doesn’t mean that they’ll be a terrible tenant, after all!

 

What’s Included in a Credit Reference Letter?

Credit reference letters generally describe the capacity in which the letter writer knows the requester, the length of time they’ve been acquainted, and their payment history. The writer should also include details about any late payments, such as the amount owed and the actual payment date.

Of course, you should note that the nature of these rental letters of reference will vary depending on the resource used by the renter applicant.

Some applicants and letter writers may treat the reference more as a request for proof of income, which is acceptable so long as you find the source trustworthy. Others view it more along the lines of a rental application personal reference, speaking to the applicant’s ability to uphold major financial obligations.

The bottom line is this: With prospective tenants coming from all walks of life, not all applicants have established enough credit for their tenant credit report to be accurate.

 

Why Isn’t a Credit Check Enough?

As a landlord, you’re probably familiar with running a tenant credit report. So why is it that you’d also want to require a credit reference?

First, credit reports don’t include everything. Evictions don’t appear on them, for example (which is why we offer separate eviction reports alongside tenant credit reports). But they also don’t include rent payment history, or cleanliness details, or full income details. What’s more, a credit report will not provide information regarding whether or whether not your renter applicant was a nuisance to others.

Just like a job seeker provides references to speak to their qualifications and character, rental applicants provide credit and rental references to demonstrate their trustworthiness when it comes to following through on money matters. It’s a rental letter of reference, so to speak, that can reveal just how reliable people are.

Without a thorough vetting, you might get stuck with a professional tenant—and these tenants are a landlord’s worst nightmare, preying on sympathy and legal loopholes to make another month of not paying rent on time or at all.

(article continues below)

Free Tools to Automate Your Rentals:
Rental Application & Free Background Check
Full Credit, Criminal & Eviction Reports (free for landlord)
Lease Agreement
Automated Rent Collection

Beyond Screening Reports: Shading in the Details

Still not convinced?

To better understand why rental references are a critical piece of the tenant screening process, here’s a hypothetical.

Perhaps you receive two appealing rental applications. Both rental applicants are more or less the same in terms of demographic information — credit, income, pet ownership, and so on.

Without a rental reference for each applicant, how do you decide between them?

You could “go with your gut,” of course, but this could be the difference between a responsible tenant that respects the terms of your lease agreement, and a tenant that breaks them, whether secretly or overtly.

If you’re an experienced landlord, then you know it’s possible for a renter to appear perfect on paper and yet be a nightmare professional tenant. They may have a solid job but completely disregard your rental agreement’s clauses about pets, smoking, or even number of occupants.

Thus, rental references help prevent the possibility of choosing a nightmare tenant by screening out the troublemakers.  When possible, ask for rental references for the last several landlords. Unfortunately, current landlords don’t always tell the absolute truth about the renter applicant, in an effort to get them out quicker.

 

Who Should Provide Credit References?

Anyone interested in living on a property should fill out a rental application — this is simply so that you, the landlord, are crystal clear on who exactly will reside on the property. Since most rental applications generally leave room for the names of other occupants, you’ll also be informed of others looking to live there.

That might include other adults, which raises the question: Do you need credit references from them as well?

That’s a tough question, given that housing situations come in all shapes and sizes. Consider a few scenarios:

    • Four recent college graduates looking to live together
    • A married couple supporting one live-in grandparent
    • An unmarried couple living together for the first time
    • A single parent and their college-age son

What would you do in each of these scenarios?

Here’s a general rule of thumb: whoever is signing the lease should provide a credit reference, and one or two references per person typically suffices. Obtaining a criminal background report on all those over the age of eighteen can help as well.

By signing their name on a rental agreement, a tenant is agreeing to the landlord’s housing terms, including the responsibility of paying rent. Whoever holds that responsibility, whether that’s one person or multiple, should absolutely provide a credit reference.

However, some leases require that all occupants sign, in which case it may be necessary for all adult signatories to provide at least one credit reference.

Take note: household members under age 18 need not worry about providing credit references or submitting rental applications, as most contracts signed with minors generally cannot be upheld in court.

(article continues below)

What short-term fix-and-flip loan options are available nowadays?

How about long-term rental property loans?

We compare several buy-and-rehab lenders and several long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

How to Get a Credit Reference?

Most employers, property managers and owners of rental investment property will want to see permission granted by your rental applicant before furnishing any information. That is why it is important to use a rental application  that includes text that provides this permission. And never forget a signature! Often these days where the renter applicant simply requests an online tenant screening report, many owners of rental properties forget to get a signed rental application.

SparkRental also offers a free tenant credit reference letter through our online landlord software.

 

How Can Landlords Verify the Legitimacy of a Credit Reference?

Worried that an applicant will fabricate a credit reference letter or give you fake contact information?

After all, it’s not unheard of for some deceitful applicants to plug in a friend’s phone number under their previous landlord or employer’s name. Or, they may go the professional route by hiring services like CareerExcuse.com to vouch for them.

Oftentimes, these rental applicants aren’t true housing psychopaths or nightmare professional tenants; they’re simply nervous about having a negative reference. But all the same, it doesn’t hurt to play it safe. And finding out an applicant told a white lie may be a red flag for other issues.

There aren’t easy tricks for spotting a lying applicant right away, but there are certainly strategies for verifying a reference’s legitimacy. To find out whether your applicant’s provided a credible reference, try the following:

    • Verify Employers: For employer references, ask for an email address in addition to a phone number—or better yet, a business card. A business card or even letterhead address can give you more info with which to verify the contact provided by an applicant. Additionally, asking for a pay-stub or proof of payment provides a double-duty reference. It’s serves as additional verification that the employer is a real place of work as well as proof-of-income.  Send an employment reference request asking the important questions to verify employment. A quick Google search might reveal whether this person is actually who your applicant claims, or someone else masquerading as them.
    • Call a Confirmed Number: Instead of calling the boss or supervisor listed on the rental application, do some research on the company itself and call the number listed on its website. Ask to speak with HR, who can easily verify whether your rental applicant actually works at the organization.
    • Verify Landlords: When you call current or former landlords, ask about whether they have any available properties. If this “landlord” responds with utter confusion, you’ve just caught a fake reference.
    • Check Social Media Accounts: If the applicant’s Facebook or Instagram account are public, what do their profiles look like? Are they wild party animals, or do they seem reputable? Check to see if they have a profile on LinkedIn. Great way to see if the employer listed on their rental application matches.
    • Listen: Beyond trying to actively smoke out fake references, see what they say on the phone. Listen carefully for any cues that they’re stumbling with what to say next and simply following your lead. A fake reference may be clueless on how to serve as a reference and thus only be able to answer in broad, ambiguous terms.
    • Verify Income Twice: Pay stubs can easily be faked. Either confirm income with the employer’s HR department, or ask for a bank statement to confirm that these paychecks have reached their account, which would be listed accordingly as a deposit line item.

Final Thoughts

Your rental property is an investment, and that’s not something to be taken lightly, especially when entrusting that investment with someone you don’t personally know. Just imagine finding out your tenant has caused irreversible property damage that can’t be recovered in their security deposit—you want to minimize any risk of this or any other major tenant issue at all costs. Worse, renting to a professional tenant can cost thousand’s in lost rental income as they sit comfortably in your rental property, while working the system to not pay rent.

That’s why credit references are of the utmost importance when screening tenants.

Of course, credit references aren’t the only factor landlords should weigh when going through rental applications. For instance, perhaps you receive a glowing rental reference combined with an eviction history and criminal background—regardless of whether it’s a legitimate reference, that could be cause for alarm.

Instead, credit references should just make up one facet of your rental application and tenant screening process. This information helps to paint a more holistic image of your prospective tenant and provides insight beyond the standard rental application questions.

 

What do you look for in rental application credit references?

 

More Leasing & Tenant Screening Tips:

I want to know more about…

FREE Webinar: Open $250K in Credit Lines for Investing

On Wed. 3/23/22 at 2pm & 8pm EST, Deni & Brian are hosting Fund&Grow for a free webinar to show you how to open up to $250,000 in unsecured business credit lines for real estate investing.

Free Background Check

Run a FREE housing & identity check!

Credit, criminal, eviction reports also available.

Want to create passive income?

 

We’ll email a series of videos in our free course,

to help you start earning income from rentals.

[mc4wp_form id=”501″]

Privacy Policy: Your info will never be shared or sold to a 3rd party. Even if Dr. Evil offers us 1 million dollars 🙂

Rental ROI Ebook

Want to earn more from your rentals?

 

Download our free Ultimate Guide to Higher ROI and be dazzled by the charming wit, disarming frogs and invaluable tips for higher profits and less work.

 

[mc4wp_form id=”501″]

Free Mini-Course: Passive Income from 2-4 Unit Multifamilies

Free Mini-Course: Passive Income from 2-4 Unit Multifamilies

 

Ready to build passive income from small multifamily properties?

Over the next week, we'll email you a free series of videos, so enter your best email and let's get started!

You're in! Check your email to confirm, and you can email us directly at [email protected] with any questions :-)

Free Webinar: Earn 15-50% on Passive Real Estate Syndications

LIVE masterclass on Tues. 10/25 @ 8pm EST

Your seat is reserved! Check your email to confirm.

Inside a group real estate investment

Here's a quick video breakdown of a past group investment — and how it's performed since our Co-Investing Club invested in it in early 2023.

You got it! Check your email for the link, and some other fun freebies.

Ready to Build Passive Income?

Ready to Build Passive Income?

 

We'll email you the course videos over the next week, so enter your best email!

You're in! Check your email to confirm.

Ditch Your Day Job: Free 8-Video Course

 

Our brand new course on how to reach financial independence and retire early (FIRE) with rental properties is open for one week from Oct. 23-30!

You're in! Check your email for the link, or click here for the 1st video!

How do group real estate investments work?

If you want the cash flow, appreciation, and tax benefits of real estate without hassling with loans or landlording, learn how to invest passively. 

Awesome! Check your email :-)