You could do this directly by writing to the tenants employer and previous Landlord or more often these days outsource it to a specialist referencing company. Tenants are advised to be honest when completing the reference form as they are cross-referenced with other information sources and if the tenant fails for something that hasn’t been disclosed, the tenant risks losing their holding deposit.
Letting agents can charge between £50-£100 in order to do this for you. However, most of this time, this should only cost £10-£20 by doing it yourself.
Some of the common reasons why prospective tenants fail the referencing process include:
County Court Judgments (CCJs) against their name
Even if these are satisfied they are likely to show up on a credit check for some years. Court decrees, Bankruptcy or Administration orders will also affect the tenant.
Poor Income to rent ratio
Referencing agencies will usually use a ratio of around 2.5. This means that the tenants gross salary must be at least 2.5 times their share of the rent. If there is more than 1 tenant, each should provide accurate details of their respective gross incomes to you or your agent. It may be possible for the rent to be proportioned unequally for referencing purposes.
If your tenant is self employed, their income will be measured as an average of the last 3 full years, as stated in the tenants audited accounts. Undeclared payments received will not be classed as income.
Breaks in employment
Any breaks in employment over the previous 6 months (other than the tenants holiday entitlement) may cause concern and fail in the application. Short term employment contracts are generally not acceptable for referencing purposes.
Previous Landlord’s reference
If a tenant has ‘miffed off’ any previous Landlord for some reason or they may refuse to give a reference or just ignore the messages from the referencing company. If your prospective tenants previous rental property was managed by an agent, it is them that will provide the previous landlord’s reference.
Poor credit score
Missed payments on credit cards and loans will have a detrimental effect on a prospective tenants credit score although their credit score has to be very bad to fail the tenant referencing process.
Generally speaking the agent will want the tenant to pass the referencing process but has a responsibility to you (the Landlord) to be thorough. The ultimate decision lies with the Landlord and as such you always have the option to relax certain criteria if you choose. Landlords can be more likely to be more amenable if applicants disclose the problems up front. Where references are not straightforward it may be in the tenants interests to suggest a meeting with the you (the Landlord) to explain their situation in person.
As a last resort, a tenant usually have the option to use a Guarantor. They will be required to sign a declaration stating that they will pay your tenants rent if they default. The Guarantor will then be referenced using the same procedure.
Don’t forget that referencing can take up to a week, even when you’ve found a tenant that seems suitable. It is possible to fast track the process, which means you should have them back within 48 hours, but this will cost you extra.
All credit checks go through 2 central offices – the main one in the UK is Experian. All tenant referencing companies go through this avenue to credit check a tenant on your behalf. We would recommend doing this yourself direct with Experian as it costs from just Ł10.42 online – Visit the ‘CheckMyTenant’ service from Experian here. Remember, you MUST legally gain permission from the prospective tenant to perform a credit check on them. Credit checking anyone on a random basis is against the law.