Tenant Referencing & Credit Checks Done The Right Way!

Table of contents

• What is tenant referencing for?
• Do landlords need to reference tenants if using a letting agent?
• When should landlords reference tenants?
• How to reference your tenants the right way
  • Step 1: Pre-viewing referencing
  • Step 2: Post-viewing referencing!
  • Step 3: How to thoroughly Reference & Credit Check your short-listed tenants!
• Avoiding fraudulent tenancy applications
• Other points to consider when referencing tenants
• Download FREE Landlord Referencing Checklist

What is tenant referencing for?

Risk management. That is it in a nutshell.

By following a rigorous screening and referencing process, which includes checking rental history, employment status and credit checks, landlords can significantly increase the odds of avoiding disastrous tenants. The kind that notoriously and effortlessly drain profits, most commonly by falling into rent arrears and/or using the fabric curtains as toilet paper.

While finding tenants quickly to keep void periods to a minimum is on the top of the agenda for most landlords, it should never compromise quality. Quality should always trump speed.

We should ALL be trying to source quality tenants quickly, and to be honest, I’m not entirely if that’s possible without thorough tenant referencing.

Unfortunately, many landlords make the following two unforgivable mistakes:

• Accept the first tenants that come along because they just want the rent to start rolling in ASAP.
• Don’t bother referencing their applicants because it’s a pain in the ass.

AVOID being that kind of landlord. At all flipping costs.

I would rather keep my property vacant and stomach the mortgage payments than rushing in a tenant that didn’t quite meet the criteria. In the long-run, a cowboy tenant will be much more costly and stressful than a vacant property. Hold out for a tenant that makes sense.

Each and every landlord and agent may have their own way of referencing tenants, I can only speak for myself, so I’m going to share my formula – one that has evolved (and improved) over time – which has served me well over the years. Feel free to replicate, or be inspired and adapt to suit your own circumstances.

Do landlords need to reference tenants if using a letting agent?

If you’re using a letting agent, whether it be an online letting agent or highstreet agent, they will most likely include ‘tenant referencing’ as part of their service, or as an add-on service (which you’ll have to cough up extra for).

By all means use their referencing service, but my suggestion is NOT to completely leave it in the hands of your agent, even if it’s included with the service you’re paying for. You definitely have your part to play when it comes to choosing the right tenant for your property. I don’t care what anyone says, and that includes The Letting Agent of the decade, no agent will ever care about your investment as much as you do.

While it may not be possible for every landlord, particularly overseas/long-distant landlords, it’s definitely always sensible to reference and meet any prospective tenants for yourself, and not just rely on your agent’s practises and recommendation.

When should landlords reference tenants?

I found that it’s best to break referencing into three stages!

1. Pre-viewing referencing: this takes place before viewings, so you only schedule viewings with applicants that meet the minimum requirements.
2. Post-viewing referencing: this takes place during or after the viewing, so you can decide whether or not you want to move them onto the next stage of referencing.
3. Thorough Referencing: this is conducted on the applicants that impressed you most during the viewings.

The reason it’s broken down into stages is because it’s not useful or practical to thoroughly reference EVERY applicant, otherwise you’ll end up wasting a stupid amount of time and money.

One of the most annoying aspects of finding a new tenant is the massive time-wasting that comes along with it, especially if you’re not vigilant from the get-go.

If you asked me to tally-up how much time is consumed on average by all the tire-kickers, unsuitable applicants and total blaggers that apply for each tenancy, it wouldn’t be entirely surprising if I’m left with very little faith in humanity.

It can be tedious beyond belief, especially if you get inundated with applicants (which is becoming more and more common as the current rental market continues to grow).

You can quickly and easily whittle down your list of applicants by initially conducting a soft referencing approach…

How to reference your tenants the right way

Step 1: Pre-viewing referencing (Processing Tenancy Applications)

Experienced landlords will typically do one of two things to separate the wheat from the chaff before scheduling any viewings with tenant applicants:

• Conduct a phone interview with all applicants. I say “interview” for lack of a better word, but it’s never as formal as an interview, it only needs to be a friendly chat. You can download a tenancy application form and run through the questions over the phone (and of course, feel free to add your own pertinent questions).

  This is probably the most telling method, as you can tell so much by how someone conducts themselves on the phone.

• Email each applicant a tenancy application form, and get them to complete it.

The interview/form should determine the answers to the following questions:

• Tenancy details: number of applicants, proposed tenancy start date.
• Tenant’s personal details: tenant(s) name, contact details.
• Current Landlord: details of current landlord.
• Referee / Guarantor Details: details of Guarantor.
• Employment details: current and past employment details, and salary.
• Occupants: Details of all the people that will occupy the property.
• Other details: details such as smoking status, pet status.

Trust me, construct a screening process before arranging any viewings – you’ll be surprised and overjoyed by how many idiots and time-wasters you almost met.

In the past, some applicants have actually been disgruntled by the screening process, and it’s sent them running for the hills. That only means the pre-viewing screening process is working, because any reasonable person will understand and happily assist with answering reasonable questions.

Of course there’s nothing wrong with meeting every applicant and getting them to complete the form during the viewings, and that will certainly help with the process of elimination. However, it will certainly mean you’ll be more prone to mingling with a whole heap of time-wasters/unsuitable applicants. It’s your call.

Step 2: Post-viewing referencing!

You can run these checks before the viewing, but I find it’s most practical to do it during or soon after the viewing, because it involves applicants providing documentation. Some applicants may not feel comfortable providing personal information unless they are interested in the property (which is usually determined after the viewing), so that’s why you may have to wait until after.

Check Identification

Before you start contemplating whether someone is a potentially suitable tenant or not, make sure they’re actually who they say they are by checking their identification.

Due to a newly introduced landlord legislation, Under section 22 of the Immigration Act 2014, Landlords in England are actually legal obligated to check their tenant’s proof of ID and citizenship to help control illegal immigration. Failing to comply could result in penalties to the tune of £3,000.

However, while the legislation DOESN’T currently apply to every landlord in the UK, you’d have to be crazy not to do it, whether it’s required or not.

Request payslips

Request at least 3 months of the most recent payslips of all employed applicant(s) that will be responsible for paying the rent. This will help verify that they are actually earning what they say they are.

Request bank statements

Request at least 3 months of the most recent bank statements to verify income.

Request a Disclosure and Barring Service (DBS) check

Requesting a DBS check is somewhat of a hidden gem in tenant referencing; highly useful yet often overlooked. I rarely see or hear landlords mention DBS checks at all.

I have a few theories as to why, but I believe the main reason is that many landlords – understandably – assume that referencing services include DBS checks. However, they don’t, and that’s because landlords and agents cannot apply for a DBS check on behalf of tenants – it’s something tenants must request themselves.

It’s important to note that tenants are not legally required to undergo a DBS check, and landlords cannot insist on it. Housing cannot be denied solely on the basis of not providing a DBS certificate.

So, should landlords request a DBS check? I personally think it’s a smart move to, at the very least, give extra weight to applicants who are able to and willing to provide one. I don’t see any harm in making that clear to applicants, as it can help paint an overall picture of the applicants risk profile.

Anyone can apply for a “Basic” DBS check via the Gov website for £21.50 (note: there are four different levels of DBS checks, and the highest level of DBS that can be requested by landlords on tenants is a “Basic”!)

Who wouldn’t want to know if an applicant has a long history of convictions?

If you plan on using a letting agent to manage the tenant-find process, including referencing, you could request that they ensure potential tenants provide a DBS certificate, with consent to share it with the landlord. I know from other landlords that letting agents are usually happy to accommodate this request.

Step 3: How to thoroughly Reference & Credit Check your short-listed tenants!

So after you’ve met [during the viewings] and screened your applicants, you should have whittled down the interested applicants into a cute little shortlist. You might now be left with one, two or a handful of prospective tenants, that you would happily consider letting your property to, congratulations.

The next step is to further reference these applicants to help make your decision on picking the right tenant.

1) Gut instinct

Always meet your prospective tenants, even if you’re using a letting agent.

I personally believe that one of the greatest tools to identity a rogue tenant is by relying on gut instinct. It’s not a coincidence that it’s first on my list.

I’m sure a lot of landlords have shown prospective tenants around during a viewing and thought, “Hmm… I’m not sure I want these people living here”

There have been times when my gut was yelling at me to avoid certain applicants (there was just something off about them), but all the on-paper credentials was pulling in the other direction (i.e. they had a perfect credit score, impeccable character references etc).

More often than not, when I went against my gut I paid for it.

Unless I feel completely comfortable with my prospective tenants, I don’t bother wasting time on trying to convince myself they’ll result in being good tenants, even if my letting agent tries to convince me otherwise.

I firmly believe that a landlord (with common sense) will be more effective at finding good tenants compared to the average letting agent, simply because no one will care about our investment as much as we do. We [landlords] inherently rely on our gut instinct because we have skin in the game, while letting agents have no emotional attachment, so they’ll purely rely on the numbers. I can unequivocally say, through my own experience, that gut instinct is an extremely effective bullshit detector.

If your prospective tenants make you feel uneasy, it’s probably for good reason.

2) Use a professional Tenant Referencing / Credit Check Service

Besides from using your own independent referencing protocols and intuition – which I’m sure is absolutely impeccable *cough* – I can only highly recommend reinforcing your defences by using a professional referencing service which includes a credit check. A credit check will interrogate the financial history and current financial status of an individual, and report back any red flags, including CCJ’s. Very useful.

The reason you probably won’t want to professionally reference every applicant, but only your final short-listed applicants, is because landlords [in England] are responsible for covering the costs, so referencing EVERY applicant can easily be costly. So you’ll likely want to reserve professional referencing for those that are still interested in renting your property after viewings.

If you’re using a reputable letting agent to manage your referencing, they should use a 3rd party professional referencing service to reference your prospective tenant(s).

A professional referencing service will typically include the following:

• Identity Check– confirms whether or not your prospective tenant is who they say they are.
• Financial Check– this will highlight any red flags in a Tenant’s financial background (e.g. CCJs and other adverse data) that can provide crucial for determining a tenant’s ability to make rental payments.
• Tenant Risk Score– this will provide you with a score on the level of risk of letting a property to the tenant/li>
• Income Reference– this will verify the Tenant’s employment and income status, by confirming job title, employment start date, length of employment and salary
• Previous Landlord Reference– feedback from previous landlords, which will provide a good indication of their reliability

Yes, you will have foraged a few of those details already (if you followed my advice to a tee) e.g. previous landlord references, employers reference etc. during the first stage of referencing. But a professional referencing service will verify all the details, so it will save you from actually having to contact the referees yourself. The only reason I gather those details via the application form is to help me decide on who is worthy of getting through to the next stage, and not necessarily because I plan on doing the verifying myself.

Tenant Referencing & Credit Check services

If you’re not using a letting agent, or if you are, and you’re not using their referencing service (e.g. because it’s too expensive), I’ve listed a couple of the popular referencing and credit check services offered by OpenRent – I’m personally a satisfied customer and I’ve also received positive feedback from many other self-managing landlords, so I happily recommend them.

Just to let you know, if you do intend to use one of them, they will contact your tenant for consent to conduct a credit check on them! So you may want to give your tenant some prior warning.

Tenant Referencing & Credit Check Services

Supplier	Notes	Price
Supplier	Notes / Includes Speedy Reference 1 Working Day (on average) Credit Check Linked Address, Identity & Fraud Information CCJs, Decrees, and other court information Right to Rent Check and Advice Bankruptcy data Electoral Roll check Alias name search View sample report	Price £30 Inc VAT	More Info
Supplier	Notes / Includes Comprehensive Reference 3-5 Working Days (on average) Rent Guarantee Insurance Eligible Credit Check Linked Address, Identity & Fraud Information CCJs, Decrees, and other court information Right to Rent Check and Advice Affordability Rating Previous Landlord Reference Employers Reference Bankruptcy data Electoral Roll check Alias name search View sample report	Price £30 Inc VAT	More Info

Please note, I try my best to keep the information of each service up-to-date, but you should read the T&C's from their website for the most up-to-date and accurate information.

Do I have to use a professional tenant referencing service?

Nope.

But from my experience, it’s the easiest and quickest option. Otherwise, you should do the following yourself:

• Contact employer to confirm employment status and salary
• Contact previous landlord(s) for references
• Use a credit check service directly e.g. Experian

3) Visit your prospective tenant’s current home

Granted, this is a bit of a pain in the royal jewels, but many landlords do it because it’s extremely effective.

Arrange a visit to the prospective tenant’s current residency, allowing you to assess their standard of living and how they take care of their home. Needless to say, they will most likely make an extra effort to clean the property before your arrival. However, some people generally don’t know the difference between clean and darn right filthy, so they’ll be restricted to their own standards. What they find clean, may not actually be clean. So this method is still a good indicator.

I’ll give you a specific example of when this happened to me (although the example is kind of backwards).

I recently had a tenant vacate, and while we were going through the final property inspection my O.C.D radar went ballistic as I was detecting congealed grime and grease left behind, roaming around in the kitchen. There was also a lot of dirt and cobwebs all over the place.

The funny thing was, during the inspection, my tenants were gloating about how thorough and regimented they are in regards to hygiene, and that’s why the property was left so clean. The husband said, I quote “Tracey (his wife) is so fussy, she’s an obsessive cleaner. You know what they’re (women) are like!”

Yeah, I don’t think so, son.

All I really discovered is that they have terribly low standards and have no actual idea what clean actually means. But that’s just how some people are.

Just to clarify, I don’t think it’s necessary to infiltrate the home of EVERY applicant, only the prospective tenants.

4) Affordability assessment

Regardless of whether your tenant is in receivership of Housing Benefit or a salary from full-time employment, it’s important to assess whether your prospective tenant can actually afford your property. Essentially, create a “risk profile” for your prospective tenant.

Based on your applicant’s total monthly income (the professional referencing company you use should verify salary/income), assess whether or not you think they can realistically afford your property. Take into consideration the following expenses:

• Rent
• Utility bills (e.g. gas, electricity, water, council tax)
• Broadband/internet
• TV license
• Food/general living expenses

I’ve seen it happen many times before, where a tenant gets consumed by the excitement of renting a house they’ve fallen in love with that they don’t realise they can’t actually afford it. Tenants are often ruled by their heart in these circumstances, not by their head.

Landlords should always do the maths make a calculated decision. The numbers don’t lie.

5) Social media checks (Facebook, Instagram & Twitter)

Ahh the wonder that is social media; probably one of my favourite and potentially most entertaining methods of referencing tenants.

Basically, when someone applies to be my tenant I always look for their social media profiles (typically Facebook, Instagram, Twitter), by searching for their name and/or email address, and then narrowing down by location (usually required if I’m searching for a common name). 8 times out of 10 (I pulled those odds out of my arse, but they seem realistic enough), the applicant has left behind a digital and very social footprint, giving me the opportunity to get a snapshot into their life. If lady luck is on my side, their profiles will be public, allowing me to view the entire visual catalogue of the applicant’s life.

I’ve actually refused a tenant in the past based on what I saw on their Facebook profile. You can read about that delightful story here, The Results Of Referencing Prospective Tenants On Facebook.

Perhaps not the most orthodox or reliable of methods, but it can provide tremendous insight if the opportunity is available. That said, over the years this method has actually been very useful, and becoming increasingly effective. Most people seem to have a presence online, and most of those grubby prints are smeared across Facebook and Instagram.

Seriously, try it. Look up your applicants on social media.

Avoiding fraudulent tenancy applications

According to the 2020 Fraud and Corruption Tracker by the Chartered Institute of Public Finance and Accountancy (CIPFA), false tenancy applications are the fastest-growing area of housing fraud, costing an estimated £60.1m in the UK.

Source: Property Industry Eye

Some of the common techniques used by fraudsters for tenant applications include:

• Fake IDs e.g. passports and driving licences
• Doctored documentation e.g. payslips and bank statements
• Fake references

Just a friendly reminder of why being vigilant is paramount and why using a professional referencing service is best not avoided.

Stay safe out there, it’s the wild, wild freaking west.

Other points to consider when referencing tenants

Landlords in England: You CANNOT pass on the costs of referencing/credit checks to tenants

I already touched on this point, but I feel it’s worth reiterating.

On 1st June 2019 the “Tenant Fees Act 2019“ came into force, which is a legislation that focuses on banning and restricting letting agents and private landlords (in England only) from charging tenants with certain fees, which includes referencing fees and credit check fees.

So if you’re a landlord in England, from the 1st of June 2019 you will not be able to charge your tenants for any form of referencing. If you do, the charge will be deemed unlawful, and you could face a hefty financial penalty.

Don’t stop looking for tenants until the deal is signed!

Word of warning: do NOT stop looking for tenants! Too many landlords make this fatal mistake, so I urge you not to fall victim, because it may unravel into a recklessly expensive mistake.

Do NOT under any circumstances stop looking for tenants until your new tenant has:

• Passed referencing
• Provided a Guarantor that has also passed referencing
• Paid deposit in full
• Paid first month’s rent in full
• Signed contracts
• Has officially moved into the property (strictly speaking, point 4 should not even occur unless 1-3 have been completed).

Until all the above is checked, keep on taking viewings and processing applications.

Tenants frequently delay move in dates or pull out from the arrangement all together, and most of the times there’s little landlords can do to recoup that lost time/money.

don’t take your tenants word or allow them to earn your trust at this stage, despite how much they assure you they are interested and intending on moving in, it means nothing until they actually do it. Absolutely NOTHING!

Referencing Guarantor

While you don’t need to be as thorough, you should still also reference your prospective tenant’s Guarantor. I usually just purchase one of the above referencing packages.

It’s important that the guarantor is also creditable, otherwise there’s no point in using a Guarantor in the first place.

Rent Guarantor Insurance (RGI)

RGI is a type of insurance that protects landlords against loss of rent e.g. if a tenant falls into arrears. In the event of an arrears tragedy (which is ridiculously common, unfortunately), the insurance company will cover the loss of rent. I’ve personally relied on a Rent Guarantee policy to reclaim loss of rent after my stupid, inconsiderate tenant fell into arrears.

RGI won’t necessarily prevent you from recruiting a bad tenant, but it will ease the pain if it happens!

Personally, I think these rent guarantee policies are extremely useful and worth the money, especially when you’re dealing with new tenants. To be honest, they’re not terribly expensive policies, I pay around £120 per year, per tenancy.

If you’re interested in learning more (which I recommend that you do), you can read my RGI Guide.

One-size-fits-all does NOT apply here!

The final point I want to make is that my blueprint for referencing tenants is precisely that, my blueprint.

While it works for me (and my circumstances) and should fundamentally help all landlords minimise the risks of getting tangled with dead-beat tenants, it’s important to understand that it’s also adaptable and open to evolving for varying circumstances. Your situation and needs might be different to mine.

It’s easy to forget why we’re doing this exercise in the first place, so I’ve found that it’s helpful to remind myself that every decision I make should be to improve my safety. When you remember the “why” it becomes easier to make sensible decisions with purpose. That may mean tweaking my referencing blueprint and making it your own.

Create what makes most sense for you and your safety.