All about landlords and credit checks

Both private landlords, who manage their own properties, and property managers, employed to do the job on behalf of owners, run checks using fee-for-service agencies like Equifax and Tica, which offer financial and tenancy-specific searches.

In the case of a private landlord, they can pay “per check”, while real estate agents generally have a subscription, which allows for multiple checks. In both cases, the applying tenant provides government-issued identification, which is then used as the basis for an online check.

Why do landlords run credit checks?

Finn Simpson, from Belle Property in Dee Why, said credit checks empower property managers to make the best decisions for their landlords.

“A poor credit check likely signifies that the tenant is not good at keeping financial commitments. If this is the case, we’d rather not appoint them as tenants, as it may mean the landlord will be out of pocket, plus it’s a headache for the agent to keep chasing money from the tenant,” he said.

Diane Bukowski, managing director of eezirent, an online tool for self-managing landlords, said searching national tenancy databases is the “most important piece of risk minimisation” a landlord can do.

“It’s not difficult for a person who is ‘blacklisted’ or has other financial issues in their past to conceal this on the standard rental application,” she said.

“Relying on your gut instinct won’t count for much when the rent is unpaid and the property is damaged – things a landlord might have learned at the application stage.”

Do landlords run “soft” or “hard” credit checks?

A “soft” check refers to the application process private landlords and property managers have always managed themselves, looking over submitted paperwork and making general enquiries about an applicant’s financial situation to determine if they can pay the rent.

A “hard” credit check is an official enquiry into a tenant’s credit report and is used by creditors when a person is seeking a loan. A tenant’s permission is required before a hard check, as it is counted in their credit score and can affect it.

What is included in a credit check?

Credit checks scan credit bureaus, flagging any bankruptcy information and also if a person has been banned or disqualified from managing a business, Mr Simpson explained.

“It will bring up any court records they have been involved in and if they have been named on any tenancy databases, known as a ‘blacklist’. Being named on a tenancy database would mean the tenant has a history of not paying rent or causing severe damage to a property,” he said.

Ms Bukowski said landlords can also see how many times an applicant has been searched for on a database, which can be useful.

“If the prevailing market is such that a tenant should have no problem finding a property, yet they have been searched on a database numerous times in a short period, that suggests they’ve applied for a lot of properties, but have been knocked back. This might ring alarm bells.

“However, if the prevailing market is really tight for tenants, so there’s a shortage of available properties, then even good applicants may have to apply to different places to find one. In this situation, multiple searches should not count as a negative for the applicant. It’s just a sign of the times,” she explained.

Can tenants object to the result of a credit check?

Landlords are obliged to tell prospective tenants if a check flags an issue, Ms Bukowski said, because if there’s an error or information is out of date, they can address it, either with the previous landlord directly or the database company.

Mr Finn said a poor check doesn’t automatically disqualify a tenant. “However, they will need to provide documentation to prove otherwise or explain the situation a little better. If the tenant claims that the result of the credit check is false, the tenant will need to make further enquiries themselves.”