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Landlord's guide to tenant credit checks

11.06.24

By Alan Boswell Group

Landlord's guide to tenant credit checks

Tenant credit checks can’t guarantee you’ll never have issues receiving rent, but they can help minimise the risk of problems with tenants further down the line. Here, we look at why you should carry out credit checks as part of your tenant referencing process, how it works, and what it costs. 

What is a tenant credit check?

Tenant credit checks look at a prospective tenant’s financial circumstances. You can carry out credit checks using one of the UK’s three main credit reference agencies (CRAs): Experian, TransUnion, and Equifax. 

You can also use a tenant referencing service to carry out a full range of checks (including right-to-rent). Service providers can also ask for references from employers or previous landlords so that you can get a clearer picture of your tenant’s overall circumstances.  

How do I carry out a credit check on a tenant?

To carry out a credit check yourself, you’ll need your tenant’s full name, address history, and date of birth and request their information from one of the credit reference agencies.  

If you’re using a tenant referencing agency for a more comprehensive review, you’ll need to follow the agency’s process. This often means tenants are asked to provide information to the referencing agency for the checks to go ahead. 

Do I need permission to carry out a credit check on a tenant?

Yes. You must ask potential tenants for their permission (in writing) before you carry out any credit checks. If you’re using a third-party referencing agency, they’ll normally send an email invitation to the tenant to start the process and to ask for information.  

Tenants don’t have to agree to a credit check, but if they refuse, it’s up to you whether to rent to them or not. Also, bear in mind that if the tenant refuses a credit check they cannot pass the affordability criteria of rent guarantee insurance.

What does a tenant credit check show?

A tenant credit check is classed as a ‘soft search’, which only brings up information available on public registers. You won’t be able to see any current or past credit agreements or contracts.  

Information you’ll be able to see, includes: 

  • Electoral roll status 

  • Bankruptcy details 

  • Records of any County Court Judgements (CCJs) 

  • Fraud convictions

Why should landlords run credit checks for tenants? 

As a landlord, credit checks make good business sense and can help you find good tenants. While it can’t guarantee your tenants will never have problems paying rent, it can help you assess the overall financial risk.  

Credit checks can give you a good idea of how responsible tenants are with their finances, as any major issues will be highlighted before you sign contracts and hand over keys.  

Credit checks that run alongside other assessments also clarify a tenant’s overall financial circumstances. For example, a standard request in most affordability checks is that tenants have an income 2.5 times more than their annual rent. So, if monthly rent is set at £1,200, they’ll need a yearly income of £36,000.   

These checks provide a valuable stress test, ensuring that a tenant’s salary or monthly income can cover the rent even if unexpected costs occur. This can also help raise further questions to ask potential tenants – for instance, if they don’t earn enough, do they have savings or a guarantor?  

Tenant referencing services often check a tenant’s employment status and ask for references from previous landlords. 

Is a credit check a condition of your landlord insurance? 

If you’ve got landlord insurance your terms and conditions might specify that you need to carry out tenant credit checks; particularly if you have rent guarantee insurance.  

If you haven’t completed the appropriate checks (including right-to-rent checks), your rent guarantee policy could be voided, and your insurer can reject a claim.

How much does a tenant credit check cost? 

Tenant referencing checks are relatively inexpensive, ranging from between £5 to £30, but the cost will depend on the service you choose.  

The more comprehensive the tenant referencing service, the more you can expect to pay, so be cautious about anything very cheap as the assessment might not be as rigorous as you need.

Can you charge tenants for a credit check?

Landlords cannot charge tenants for credit checks. The law is very clear on this and under the Tenant Fees Act 2019, landlords can only ask tenants to pay: 

  • Rent 

  • A refundable deposit 

  • A refundable holding deposit to reserve the rental property 

  • Fees to make changes to the tenancy agreement 

  • Fees to end the tenancy early 

  • Costs for utilities and communication services  

  • Fees for late rental payments and replacement for lost keys if specified in the tenancy agreement 

Any other fees are classed as ‘prohibited payments’, and tenants cannot be made to pay them. If you do ask for a prohibited payment, you can be fined up to £5,000 and in some cases, face prosecution.

How long does a credit check take?

A simple credit check can take as little as a couple of days. If you’ve chosen to carry out a more comprehensive check, it can take slightly longer to confirm employment status and get hold of references.

Do I really need to carry out tenant credit checks?

Tenant credit checks are relatively inexpensive and simple, reassuring you that potential tenants can cover rental payments.  

While credit checks and tenant referencing services can’t guarantee issue-free tenancies, they should help minimise potential problems. Plus, don’t forget that rent guarantee insurance policies will expect you to carry out appropriate tenant checks. Without them, you risk invalidating your policy, meaning any claims can be rejected.  

Need help with your insurance?

If you’d like to find out more about protecting your property and income or discuss any specific needs, speak to a member of our team.

Speak to us:  01603 216399

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