Why Do Landlords Need a Social Security Number to Run a Credit Check?

Choosing whether or not you will rent a property to an individual or a group of people is a complex undertaking. In some ways, it is even a business decision. While those applying do so because they need housing, you accept those applications because you're striving to generate revenue from the property or properties you own. Therefore you have a vested interest in determining whether someone can be responsible with that property and if they can reliably meet their financial obligations on time.

While a real estate background check based on an individual's name will help you with the safety-related aspects of the tenant selection process, it can't tell you much about their financial capabilities. For this reason, many landlords require applicants to include proof of income through official pay stubs or federal tax documents. This step should establish the applicant's baseline ability to pay the rent. However, their income alone is not the full picture—what if all that income goes straight into servicing debt? They may not have the amount of available income their pay stubs indicate.

With that in mind, it makes sense for a landlord to check an applicant's credit history before finalizing a rental application. Any landlord who checks credit must follow certain rules while obtaining information from the tenant, including their Social Security number. Why do landlords need to collect such sensitive data during this process? Let's take a closer look at the answer to that question and explore more about the effective financial vetting of prospective tenants.

What Information Do You Need to Run a Credit Check?

With the typical background check, you often only need an individual's name and some other information about them to start searching for criminal records. However, a credit check is somewhat different—you will need to collect an applicant's actual Social Security number to move forward. Some types of background checks, such as alias verification, already require the use of an SSN to find matches—but you can't find someone's credit report without their SSN. Why?

Simply put, there is no other simple, singular way to identify an individual in the United States. Social Security numbers are unique identifiers assigned by the government that someone possesses for their whole life. It is this number that the major credit reporting agencies use to associate an individual's credit file with their history. Therefore, you must collect an SSN to be certain that you've pulled the correct credit file for review. 

Although no federal law requires landlords to obtain an applicant's consent before ordering a credit report, many property managers choose to do so anyway. Taking care in collecting this information ensures that the purpose of its collection—for making a housing-related decision—is clear. You can disclose your intent to use a credit check and obtain an applicant's consent on your rental application form to simplify the effort. 

Why Check a Tenant's Credit? 3 Key Reasons to Know

What makes the effort of gathering more personal information from applicants worth your time? Although an individual's credit report can't tell the whole story, the numbers it contains may illuminate your decision-making process. It could be a clean bill of health, full of red flags, or concerning enough that you feel like an additional conversation with the applicant might be wise. There are three reasons to consider:

  • First, you should be able to see whether a potential tenant carries a very high level of debt. This debt could indicate financial irresponsibility or less pressing issues. For example, it is very common for Americans to carry a large amount of medical debt. As of 2023, medical debts in collections worth $500 or less won't appear on credit reports.
  • Second, you can see whether an applicant has a good history of making payments on time. Missed and late payments appear on credit reports and can help you better understand if an applicant is trustworthy and honors their financial obligations.
  • Finally, you will be able to see if the individual has any prior evictions in their credit report. Some landlords will choose to steer clear of those with evictions, especially more than one, because it may indicate a habitual inability to honor the conditions of the rental agreement. If you discover evictions on a credit report, you should consider speaking with the applicant about their reasons.

Handling Personal Information Vs. Using a Third-Party Service

Gathering Social Security numbers from applicants can make some landlords uncomfortable. Once you obtain them, you're responsible for protecting them and keeping them secure. Exposing SSNs and other personal information can open the door to identity theft and other serious problems. If you intend to collect SSNs and order reports yourself, develop a policy for storage and handling. You may need to ultimately destroy your record of an applicant's SSN rather than keep such information accessible.

Some third-party services will contact your applicant for you, letting the applicant order their credit report while authorizing you to receive a copy as well. This streamlined process ensures you don't need to manage SSNs directly. Choosing a partner that understands the importance of security and smart handling practices for personal data can make your tenant selection process much easier.

Red Flags to Look For on a Credit Report

Once you finally receive a copy of the credit report, you'll need to know how to analyze it. Reports from the three major credit reporting bureaus typically include the same information. This information includes open accounts, the maximum credit line, and the amount of credit currently utilized. What are the red flags to look for in this information?

  • A high degree of utilization versus total credit. 
  • A habit of missing payments
  • Accounts in arrears or sent to collections
  • Evictions
  • A large number of credit lines
  • Many credit lines have not been open for very long

In short, you should evaluate the report for signs that indicate an applicant may not make good financial decisions. You should evaluate this information in concert with the income they report on the rental application. Though most landlords hew to a standard of only accepting applicants whose take-home pay is three times or more the amount of rent, you should evaluate tenants based on your own risk tolerance. 

Simplifying and Streamlining Your Real Estate Background Check Process

Considering the importance of a credit report to the tenant selection process, it's easy to see that you'll need to build a workflow that nets relevant information without delays. Many landlords, especially those with only one property, may try to handle the process on their own. However, it can be time-consuming and frustrating. The solution is to work with a third-party consumer reporting company.

The right partner agency can help you with everything from questions such as "how far back does a real estate background check go?" and concerns about how to keep your vetting process fast to meet deadlines. With backgroundchecks.com, ordering a credit report bundled with a background check is simple and easy. Learn more today about how to build an effective vetting routine to fill your open properties.

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Michael Klazema

About Michael Klazema The author

Michael Klazema is the lead author and editor for Dallas-based backgroundchecks.com with a focus on human resource and employment screening developments

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