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newSchoolWorks.com › VoTechWorks › Business & Cross-Cutting › Real Estate & Property Management › Leasing: Residential and Commercial Rental Practice › Lesson 4
BUS-REAL58-05 · Lesson 4 · 13 clock hours · practice

Tenant Screening: Application, Credit, Background, and Adverse Action

Objective. Students will apply a written set of uniform screening criteria to evaluate a rental application package, interpret a sample consumer credit report, and prepare a compliant adverse-action notice under the Fair Credit Reporting Act when an applicant does not qualify.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a credentialed professional in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it as instructions for work on a job site or on live equipment. Always follow your instructor, your supervising professional, and current official references and regulations.

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Why Uniform Screening Criteria Matter

Every time you evaluate a rental application, two legal frameworks are watching: fair housing law and the Fair Credit Reporting Act (FCRA). Uniform written screening criteria protect you, your employer, and applicants. A written policy applied consistently to every applicant is your best defense against a fair housing complaint, because it shows decisions were based on objective business standards—not on who the applicant is.

Before you open the first application packet, your office must have a written screening criteria policy in place and available to applicants upon request. That policy typically covers:

Apply every criterion in writing, document your reasoning, and keep records. Inconsistent application—approving one applicant who misses a benchmark while denying another with the same shortfall—can constitute illegal discrimination.

Reading a Consumer Credit Report

The FCRA governs how consumer reporting agencies (CRAs) collect, share, and report credit data. When you pull a report for housing purposes you are acting as a "user" of a consumer report and take on specific legal duties.

A standard consumer credit report contains several sections:

Credit score – a three-digit number calculated from the data in the report. The score alone does not tell the whole story; always read the reason codes printed with the score, which explain the top factors dragging it down.

Payment history / account status – shows each account, the credit limit or loan amount, the current balance, and whether payments were made on time. Late payments are usually shown as 30-, 60-, or 90-day lates.

Derogatory items – items that signal significant credit problems: accounts charged off (the creditor wrote the debt off as a loss), accounts sent to a collection agency, judgments (in states where they still appear), or repossessions.

Collections – unpaid debts sold to collection agencies. A collection for a prior landlord or utility company is especially relevant to rental screening.

Public records – may include eviction judgments or bankruptcies depending on the reporting agency and state law.

Inquiries – a list of parties who pulled the report. Hard inquiries (credit applications) can lower a score slightly; soft inquiries (pre-screening, self-checks) do not.

When scoring an application, compare each element against your written criteria. A score above the threshold with several derogatory items may still fail if your policy requires both minimum score AND clean collections. Follow the policy exactly and document which line items drove your decision.

The Adverse-Action Notice Under the FCRA

When you deny, conditionally approve, or take any unfavorable action based wholly or partly on information in a consumer report, the FCRA requires you to give the applicant an adverse-action notice. This is not optional—it is a federal legal requirement.

A compliant adverse-action notice must include:

1. The name, address, and phone number of the consumer reporting agency that provided the report.

2. A statement that the CRA did not make the decision and cannot explain why you took the action.

3. Notice of the applicant's right to obtain a free copy of the report from the CRA within 60 days.

4. Notice of the applicant's right to dispute the accuracy or completeness of any information in the report with the CRA.

5. The principal reason(s) for the adverse action (most forms provide standardized reason codes).

The Consumer Financial Protection Bureau (CFPB) publishes a summary of consumer rights under the FCRA that you must also provide (or ensure the CRA provides) to the applicant. Check cfpb.gov for the current version.

Timing – the notice must be provided promptly. Most practitioners deliver it at the same time as, or immediately after, the denial communication.

Reason codes – pre-printed codes on standard forms cover common reasons such as "insufficient credit history," "derogatory public record or collection filed," "too many accounts with balances," or "income insufficient relative to obligations." Select all codes that factually apply; do not omit a relevant reason.

Safety and Compliance Points

Key terms9

Uniform Screening CriteriaA written, property-specific policy stating the objective standards (income ratio, credit score, rental history, etc.) applied equally to every applicant for a rental unit.
Consumer ReportAny written, oral, or electronic communication by a consumer reporting agency bearing on a person's creditworthiness, used for purposes such as housing; regulated by the FCRA.
Consumer Reporting Agency (CRA)A company that assembles or evaluates consumer credit information and furnishes consumer reports to users; examples include the three major national credit bureaus.
Adverse-Action NoticeA written notice required by the FCRA that must be given to an applicant whenever a landlord takes an unfavorable action (denial, conditional approval) based in whole or in part on a consumer report.
Derogatory ItemA negative entry on a consumer credit report, such as a late payment, charge-off, collection account, or repossession, that lowers a credit score and signals credit risk.
Permissible PurposeA legally authorized reason under the FCRA for obtaining a consumer report; evaluating a rental application is a recognized permissible purpose.
Fair Credit Reporting Act (FCRA)The federal law that regulates the collection, dissemination, and use of consumer credit information, and establishes rights for consumers and duties for users of consumer reports.
Reason CodeA standardized code printed on an adverse-action notice form that identifies the specific factor(s) in a consumer report or application that led to the unfavorable decision.
Income RatioA screening benchmark expressing required gross monthly income as a multiple of monthly rent (e.g., income must be at least three times the rent) used to assess an applicant's ability to pay.

Worked examples3

1. An applicant applies for a unit renting at $1,200 per month. The property's screening criteria require gross monthly income of at least 3× the monthly rent. The applicant's pay stubs show gross monthly income of $3,300. Does the applicant meet the income criterion?
  1. Identify the required income threshold: 3 × $1,200 = $3,600 per month.
  2. Compare the applicant's documented gross monthly income ($3,300) to the threshold ($3,600).
  3. Determine whether the applicant meets the criterion: $3,300 < $3,600.
Answer: The applicant does NOT meet the income criterion. Gross income of $3,300 falls $300 short of the required $3,600 minimum. Document this finding in the decision worksheet and proceed to prepare an adverse-action notice if this shortfall results in denial.
2. A second applicant earns $4,500 gross per month and applies for the same $1,200/month unit. Their credit report shows a score of 620. The property policy requires a minimum credit score of 650. They have one medical collection for $180 and two 30-day late payments from three years ago. Do they qualify?
  1. Check the income criterion: 3 × $1,200 = $3,600. Applicant earns $4,500. $4,500 ≥ $3,600 — income criterion MET.
  2. Check the credit score criterion: Policy minimum is 650. Applicant score is 620. 620 < 650 — credit score criterion NOT MET.
  3. Note the derogatory items (medical collection, two 30-day lates) for reference in reason codes, but the score threshold alone is already a disqualifying factor under this policy.
  4. Record overall decision: DENIED — credit score below policy minimum.
Answer: The applicant does not qualify. Although the income criterion is met, the credit score of 620 falls below the required 650. The adverse-action notice should list the below-threshold credit score as a reason code and may also reference the derogatory collection account.
3. You are preparing an FCRA adverse-action notice for the denied applicant in Example 2. The consumer report was provided by a national CRA. List the five required elements you must verify are present on the completed notice form before you send it.
  1. Confirm the name, address, and telephone number of the CRA that provided the report are printed on the notice.
  2. Confirm there is a statement that the CRA did not make the adverse decision and cannot explain the specific reasons for it.
  3. Confirm the notice states the applicant's right to request a free copy of the report from the CRA within 60 days of the adverse action.
  4. Confirm the notice states the applicant's right to dispute inaccurate or incomplete information in the report directly with the CRA.
  5. Confirm at least one specific reason code or statement of the principal reason(s) for the adverse action is included (e.g., 'credit score below required minimum,' 'derogatory collection account').
Answer: All five elements must be present: (1) CRA identification, (2) statement that CRA did not decide, (3) right to free report within 60 days, (4) right to dispute, and (5) principal reason(s)/reason code(s). A notice missing any one element is not FCRA-compliant. Also confirm you provide or have provided the CFPB summary of consumer rights.
In class: Students receive a written property-specific screening criteria policy (minimum income ratio, credit score threshold, rental history requirement) and three complete fictional application packages with supporting documents; they evaluate each application against the criteria and record a written decision with supporting notes. · Credit report interpretation exercise: instructor distributes a sample redacted consumer credit report; students identify the credit score, derogatory items, payment history summary, and collections; class discusses how each element relates to the screening criteria. · Adverse-action notice drafting: for the application that did not qualify, students complete a sample FCRA-compliant adverse-action notice form, selecting the correct reason codes and verifying that required creditor and applicant information fields are included; instructor reviews for legal completeness.
Materials: Sample rental application forms, fictional applicant packages (income verification, ID, reference letters), sample redacted consumer credit report, uniform screening criteria policy template, FCRA adverse-action notice form, FCRA summary handout (cfpb.gov reference)
Check: Written application decisions reviewed against an answer key; adverse-action notice reviewed for FCRA required elements; passing standard is correct qualification decision on at least 2 of 3 applications and a fully complete adverse-action notice with no missing required fields.

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

Leasing and Property Management
1. A property's written screening criteria require gross monthly income of at least 2.5 times the monthly rent of $1,400. An applicant documents gross monthly income of $3,400. Which statement best describes the outcome of applying this criterion?
Federal Real Estate Law / FCRA Compliance
2. Under the Fair Credit Reporting Act, a landlord who denies a rental application based in whole or in part on information in a consumer credit report is required to:
Leasing and Property Management
3. Which section of a consumer credit report is MOST directly relevant when screening an applicant for past rental debt?
Fair Housing Law
4. A property manager applies the written screening criteria strictly to five applicants but waives the credit score requirement for one applicant without a documented business reason. This practice MOST likely violates:
Federal Real Estate Law / FCRA Compliance
5. An adverse-action notice states that the CRA 'made the decision to deny the application.' This statement is:
Risk Management and Compliance
6. Why is it important to store rental application packages and credit reports securely after a screening decision is made?
Federal Real Estate Law / FCRA Compliance
7. An applicant disputes the accuracy of a negative item that appeared in the consumer report used to deny their application. Under the FCRA, the applicant's right is to:
Federal Real Estate Law / FCRA Compliance
8. A property manager is selecting reason codes for an adverse-action notice. The applicant was denied because of both a credit score below the policy minimum AND an unpaid collection from a prior landlord. The property manager should:
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