How to do a credit check on a tenant: Manual vs automated methods

The abolition of Section 21 will make it harder than ever to evict troublesome tenants. As a result, landlords need their agents to choose who they place in their properties carefully.

One of the best ways to verify tenant quality is to do a tenant credit check. This will help you determine whether or not a tenant has a reliable financial history and significantly improve the chances of:

• Landlords getting paid on time 
• You getting your commission
• Everyone avoiding long and drawn-out eviction processes

By delivering these outcomes, you're far likelier to retain your existing business. You can also leverage your reputation as a trusted partner to landlords to get ahead of your competition and scale your managed book. 

In this blog, I’ll explain how you can perform a traditional tenant credit check before revealing how to automate the process👇

• What is a tenant credit check?
• Why should you conduct a tenant credit check?
• What does a tenant credit check include?
• How much does a tenant credit check cost?
• How to do a credit check on a tenant (manually)
• How to automate tenant credit checks with Goodlord
• Conclusion

What is a tenant credit check? 

A tenant credit check reviews a potential tenant’s financial history to determine whether they can reliably pay the rent. It’s a key part of tenant referencing and typically includes: 

• Credit score review
• Outstanding debts
• County Court Judgements (CCJs)
• Bankruptcies
• Past payment behaviour

By running a credit check, you can spot potential risks early and help landlords choose the best applicants to proceed with. If tenants have a good history of handling their finances and paying bills, they’re more likely to pay their rent on time too.

Why should you conduct a tenant credit check?

There are several compelling reasons why credit checks should be a part of your tenant referencing process. Let's take a look at them:

Place financially responsible tenants in landlords’ properties

Tenant credit checks are essential to preventing rent arrears and lengthy eviction processes. While a credit check won’t guarantee a tenant will always pay on time, it does highlight potential risks, such as a history of late payments or financial struggles. This gives landlords a clearer idea of who they’re renting to.

Strengthen affordability assessments

A tenant credit check (combined with other referencing criteria, which I’ll cover later) allows you to build a clearer picture of whether a tenant can afford the rent. For instance, within our industry, most affordability checks require tenants to earn at least 2.5 times their rent.

So if the rent is £1,500 per month, they would need to earn at least £3,750 per month. This helps you spot situations where tenants may need a guarantor or significant savings to pay the rent.

Differentiate from the competition

While credit checks aren’t a legal requirement, they’re still crucial. In a competitive market, landlords need to trust that you can place reliable tenants in their properties. If they can’t, and you don’t do proper due diligence, you risk losing all of the properties they list with you to a competitor.

Protect landlords’ insurance eligibility

If a tenant fails a credit check and the landlord still chooses to rent to them, they may not qualify for certain insurance policies. This increases financial risk for landlords, making it crucial to vet tenants properly.

What does a tenant credit check include?

A tenant credit check looks at several key financial indicators to help you assess whether a tenant is reliable and financially stable. Here’s what it typically includes:

Credit score assessment

A tenant’s credit score gives a quick snapshot of their financial reliability. A high score usually suggests they have a strong record of paying bills on time and managing their finances well. A low score, on the other hand, could indicate past issues with missed payments or high debt levels that might make paying rent difficult.

Payment history

Reviewing a tenant’s track record of paying credit cards, loans, and utility bills provides valuable insight into their financial behaviour. If they frequently miss payments or pay late, this is an indicator that they’ll struggle to keep up with their rent.

Outstanding debts

Checking how much debt a tenant has can help you assess whether they’re financially overstretched. If they have high levels of debt compared to their income, they might prioritise loan repayments over rent, increasing the risk of arrears.

Adverse financial history

Serious financial issues are major red flags when assessing a tenant. Common adverse financial records include:

• CCJs or Court Decrees - legal rulings for unpaid debts.
• Bankruptcy - indicates severe financial distress and an inability to repay debts.
• IVA (Individual Voluntary Arrangement) - a formal agreement to pay back creditors over time, signalling financial difficulty.
• DRO (Debt Relief Order) - a type of insolvency for tenants with low income and minimal assets, meaning they may struggle to pay rent.

If a tenant has any of this on their record, it suggests they’ve struggled to manage their finances, and could pose a higher risk of rent arrears.

Credit applications

If a tenant has recently applied for multiple credit cards or loans, it could indicate financial distress. While occasional credit applications are normal, lots of enquiries in a short period suggests that a tenant relies heavily on borrowed money to cover everyday expenses.

Credit utilisation

This refers to the percentage of available credit the tenant is currently using. If a tenant is maxing out their credit cards or overdraft, it could indicate financial instability and difficulty covering regular expenses like rent.

Linked addresses

Verifying a tenant’s address history helps ensure consistency in their application. If there are discrepancies between the addresses they provide and those recorded in their credit history, it could indicate fraud or an attempt to hide financial problems.

Remember...

While a credit check is a crucial step of the tenant screening process, it should never be the only factor in assessing a tenant’s suitability.

At a minimum, you should also conduct ID verification checks to ensure prospective tenants are who they say they are. This is because fraudulent tenant applications are rising exponentially.

In fact, Goodlord found a 140% increase in the practice in 2023 by comparison to the previous year, with doctored bank statements one of the key techniques used by bad actors to fool agents and landlords. 

How much does a tenant credit check cost?

Tenant credit checks are fairly cheap, with the cost varying depending on the credit referencing agency you choose and the level of detail you require. Here’s a breakdown of standard pricing:

These costs cover basic credit checks only. You’ll have to pay separately if you want to run full tenant referencing which includes:

• ID verification
• Residential history
• Income check
• Affordability check
• Guarantor referencing

It’s also worth noting that the Tenant Fees Act 2019 prevents landlords and letting agents from passing credit check costs onto tenants, and you must cover these costs yourself.

How to do a credit check on a tenant (manually)

To manually do a credit check on a tenant, you need to follow these steps:

1 - Get written consent from the tenant

Before running a credit check, you must get explicit written consent from the tenant. This is a legal requirement under GDPR and credit reporting regulations and you can’t access their credit information without it.

2 - Collect key tenant information

Your next step is to verify the tenant’s identity. You can do this by asking for official documents such as a passport or driving licence to confirm they are who they claim to be.

Additionally, credit reference agencies require specific details to generate an accurate report, including the tenant’s full name, date of birth, and address history. Collecting at least two to three previous addresses helps ensure accuracy and spot any inconsistencies.

3 - Choose a credit reference agency

In the UK, there are three main credit reference agencies that provide credit reports: Experian, Equifax, and TransUnion. You’ll need to register with one of them.

These agencies conduct soft searches for tenant checks, which means they provide key financial insights without affecting the tenant’s credit score. While they don’t typically include previous rental payment history or active credit agreements, they still offer valuable data on a tenant’s financial behaviour.

4 - Request and review the credit report

Manual credit checks can take anywhere from a few hours to several days, depending on the provider and data availability. Once you receive the credit report, you need to carefully assess the tenant’s financial history.

You should pay close attention to key indicators such as credit scores, outstanding debts, CCJs, bankruptcies, and linked addresses.

5 - Document your findings and present them to the landlord

Compile a report summarising the key findings from the credit check. Highlight any potential red flags, such as missed payments, high debt levels, or inconsistencies in address history. Finally, share this information with the landlord and ensure they have the final say on whether or not to proceed with the tenant.

As you can see, manually checking a tenant’s credit history can be time-consuming and prone to errors, especially if you manage multiple properties. Automation can help you dot the i’s and cross the t’s…

How to automate tenant credit checks with Goodlord

A good credit score doesn’t always mean a tenant is reliable. That’s why credit checks should never be done in isolation, given credit reference agencies can only perform soft searches. Someone could have a solid financial history, but without ID verification or residential history, you could miss signs of fraud.

To properly assess tenants, you need a smarter, more efficient way to handle referencing – one that goes beyond just credit checks and gives you the full picture.

That’s where Goodlord’s tenant referencing comes in.

We evaluate applicants across four key areas: credit history, residential background, ID verification, and income & affordability. This means you and your landlords get a clear, accurate assessment in less than 24 hours, without the hassle of chasing paperwork.

Powered by Equifax

We’re patterned with Equifax to establish creditworthiness of a tenant. We run soft credit verification that doesn't impact the credit rating of a tenant.

A hands-off referencing experience

Our tenant referencing checks are streamlined and straightforward. Simply send the link to your applicant to start the tenants' reference check process and we'll take care of the rest—from gathering and verifying documentation to chasing referees.

Fast turnaround

We use a range of tools, such as open banking and digital identity authentication, as well as HMRC and payroll integrations to help verify tenants’ details, reinforcing the credit check.

Easily track the progress of each reference

In your Goodlord dashboard, you can choose the type of reference you need for your tenant and monitor its progress in real time.

Download detailed reports and send them to your landlords

In our platform, you can download GDPR-compliant referencing reports for every tenant. These explain the reasoning behind our recommendations, which you can share with your landlords, before they make the final decision.

If this sounds good, book a chat with our team below 👇