Landlords - Your Requirements Under the Fair Credit Reporting Act

Every landlord should run a credit check on all potential tenant applications. The report will allow you to see how the potential tenant has paid his bills in the past 7 years. The report will show you the outstanding balances on all of his or her debts as well as their minimum monthly payment. The report will show you if they have made their payments on time each and every month or do they pay 30, 60 or even 90 days late. Most reports will give you a credit score that will show their current credit worthiness.

Landlords will try to rent out a property that they have purchased sometimes for over six figures. In addition they have spent thousands or tens of thousands of dollars on repairs. Landlords will have a lot of money vested in their property. The last thing you want is to lose that property as a result of a lawsuit for violating the Fair Credit Reporting Act or FCRA. Even if you do not lose the property you could be facing step fines and penalties for each violation. The only way to avoid this disaster is to make sure you do not violate the FCRA.

The Fair Credit Reporting Act covers the rejection of any potential tenant application based on any information found in their credit report. If you use the information contained in the credit report you must provide a notice to the applicant. This notice is commonly referred to as an "adverse action notice." This notice must include the name of the credit reporting agency that provided the credit report. It must also include the consumer's rights under the FCRA. You can get samples of what you should include in this notice from the Federal Trade Commission website.

Even if you reject an application for some reason other than the report on their credit, you must still provide notice to the applicant. This notice is required because you did use a report on credit in considering the potential applicant.

The purpose of the notice is to allow the potential applicant the right to get a copy of their credit report from the credit reporting agency that you used. This allows them to review their credit report for any errors and to get them corrected.

If you fail to provide the notice, the potential tenant can sue you for damages in federal court. If they are successful in their lawsuit against you, they can recover court costs and reasonable legal fees. This would be in addition to the amount they collect for damages.