My referencing company says a tenant failed their credit check but won't tell me why. What can I do to find out the reason without breaking GDPR, or should I just reject them?
Quick Answer
Referencing companies cannot disclose specific credit check failures due to GDPR. You can ask the applicant to share their credit report or consider guarantor options before rejecting.
## Due Diligence Steps When Tenant Referencing Fails
When a referencing company reports a failed credit check, they are legally limited in what specific information they can disclose to a landlord due to GDPR. This protection prevents personal data from being shared without the individual's consent. This means landlords typically receive a pass/fail outcome rather than granular detail about the 'why'. For example, an applicant with a County Court Judgment (CCJ) might fail, but the referencing company would only state 'fail' to the landlord, not explicitly 'applicant has a CCJ registered in 2023 for £500'.
* **Requesting the tenant's own credit report**: Landlords can ask the prospective tenant if they would be willing to obtain their own credit report from agencies like Experian, Equifax, or TransUnion and share it directly with you. This empowers the tenant to disclose the information on their own terms. This approach respects their data privacy while providing you with the necessary insight to make an informed decision about their financial standing. A minor issue like an old, settled bill might not be a deal-breaker, whereas recent significant debt might be.
* **Providing a guarantor option**: If a tenant fails due to a weaker credit history or insufficient income, offering them the option of a UK-based guarantor can be a viable solution. The guarantor effectively signs a separate agreement, promising to cover rent or damages if the tenant defaults. This shifts some of the financial risk and can allow you to approve a tenant who might otherwise not meet strict criteria. The guarantor would also undergo a referencing process.
* **Increased deposit or advance rent**: Landlords might consider asking for a higher security deposit (capped at five weeks' rent for properties with annual rent under £50,000, as per the Tenant Fees Act 2019) or several months of rent in advance. This provides an additional financial buffer against potential payment issues if their credit history is borderline but other checks are positive.
## Potential Pitfalls When a Tenant Fails Referencing
Rejecting a tenant solely based on a referring company's 'fail' without further investigation can lead to missed opportunities or unintended discrimination. It's important to understand the broader context.
* **Unintended discrimination**: You must ensure your tenant selection process is non-discriminatory, adhering to the Equality Act 2010. Simply rejecting a tenant without understanding the reason behind a credit check failure could lead to accusations of indirect discrimination, especially if certain groups are more likely to have fragmented credit histories.
* **Missing a good tenant**: Sometimes, credit check failures are due to minor issues like old, settled debts, administrative errors, or a lack of established credit history (common for young professionals or new arrivals to the UK). Such individuals can still be reliable tenants with stable income. Rejecting them outright could mean losing suitable applicants. For instance, a tenant relocating from overseas might have a limited UK credit footprint, causing a 'fail' despite excellent financial stability abroad.
* **Legal challenges**: While a referencing company's report acts as a guide, the ultimate decision rests with the landlord. If a tenant feels they have been unfairly rejected, particularly if they believe discrimination occurred, it could lead to official complaints or legal challenges. Maintaining a clear, justifiable, and consistent decision-making process is critical.
## Steve's Rule of Thumb
Always seek to understand the *reason* for a referencing 'fail' directly from the tenant, as this provides a clearer picture than a binary pass/fail report and allows for mutually beneficial solutions like a guarantor or advance rent.
## What This Means For You
Most landlords want to mitigate risk but also secure good tenants quickly. Understanding the nuances of tenant referencing, especially when a 'fail' occurs, can save you from lengthy void periods or legal complications. We regularly review these practical solutions and risk mitigation strategies within Property Legacy Education, helping investors make informed decisions on their tenant selection.
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Steven's Take
The 'fail' result from a referencing company can be frustrating because it lacks detail. Based on my experience, it's rarely a good idea to just reject out of hand without probing further. Respecting GDPR means you won't get the info from the company, so you need to empower the tenant to provide it. Often, a fail is due to a small, historical issue or simply a lack of UK credit history. Asking for their own report or offering a guarantor can resolve it, turning a 'fail' into a good tenancy.
What You Can Do Next
Communicate directly with the tenant: Explain that the referencing company cannot disclose details to you, and ask if they would be willing to obtain and share their full credit report from an agency like Experian, Equifax, or TransUnion.
Offer alternative solutions: If the tenant's credit is genuinely weak, discuss options such as providing a UK-based guarantor or paying several months' rent in advance to mitigate your risk.
Document your process: Keep clear records of your communication with the tenant and the referencing company, demonstrating a consistent and non-discriminatory approach to tenant selection.
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