Simple, Effective Screening for Better Tenants in Colorado

Colorado Background Checks

Background checks are a vital part of thorough tenant screening. Every landlord needs to know the history of every applicant. Background checks give you a good idea of whether someone makes payment on time, stays out of massive debt, has a criminal past, and a lot more.

 

Background checks reduce the chances of tenant turnover, protect you from liability, and help you and other tenants remain safe.

 

In this article, we’ll help you understand what background checks consist of, how to ensure you get the information you need, and what you need to know about your state’s rules regarding them. 

What are Background Checks?

1. Credit Report: Aside from a lease agreement, a tenant credit might be the most crucial document for a landlord to understand. This document is one of the best ways to determine whether someone will pay on time and in full. Here are the main components of a credit report:
   • Basic information like former names/aliases, current and previous addresses, etc.
   • Fraud indicators like invalid phone numbers or phony social security numbers
   • Tradeline summaries that give a snapshot of an applicant’s active accounts
   • Inquiries that show a list of companies who viewed an applicant’s credit file over the last two years
   • Credit/resident score
   • Winter weather damage

   The credit score and the resident score are key. A credit score is a numerical value anywhere from 300-850 that helps illuminate an applicant’s creditworthiness. If an applicant has a score of 500 or less, proceed with caution. Most reliable tenants will ave a score above 560. A resident score is similar to a credit score, but more directly reflects someone’s reliability as a tenant. Both scores are proprietary, so the exact formulas aren’t available to the public. That said, resident scores typically include a recommendation on whether to accept an applicant or not (this shouldn’t be treated as gospel obviously, but it’s helpful).

2. Criminal History: Wide-sweeping national databases, more narrow specific state databases, and granular county records are the main elements of most criminal history reports.
3. Income Verification: There are several ways to verify income. Let’s look at some of the most common here: whether someone will pay on time and in full. Here are the main components of a credit report:
   • Pay Stubs: Paychecks are the most common way to verify income. Anyone with full-time or part-time employment can make copies of paychecks and send them to you.
   • Yearly Tax Returns: A federal tax return is another option to obtain proof of income. This is often an excellent option because it’s an official legal document, so it’s difficult to fake.
   • W-2 Tax Form: These forms show employer’s withholding payroll taxes from workers’ earnings. This is another good option because it’s a document directly from an employer.
   • Bank Statements: This method is especially effective for self-employed applicants because they won’t have regular pay stubs like those who work for traditional businesses.

   Important Note: Innago’s new income verification feature, which you can learn more about here, makes it easier than ever to ensure your tenants have the necessary funds to pay you

4. Eviction History: Except in cases where overdue rent went to collections or a previous landlord reports late payments, credit reports don’t usually show evictions.  Federal law typically prevents evictions from being shown on a background check after seven years, but this figure varies by state
   If you cannot see an applicant’s eviction history on a credit report or obtain the information by contacting their previous landlords, then you may pull an eviction report. However, certain states have restrictions on different kinds of reports (we’ll address those if they’re relevant later in this piece).
   Eviction history matters because the cost of an eviction for landlords is often between $4,000 and $7,000 or more. That means that if a tenant was evicted, they likely left their previous landlord with no other choice.
5. Application: A rental application is a preliminary form used to obtain basic information about an applicant and their eligibility. Most applications ask for this information:
   • Landlord References: Contact previous landlords and get their take on applicants. This is a critical step that some landlords skip over. Make sure you’re not one of those landlords.
   • Employment History: You want to know current and former employers and get consent to contact them.
   • Written Permission to Run a Credit Check
   • Legal Disclosures: Here’s a helpful article on what disclosures to include.
   • Additional Inquiries: Be careful here. Make sure you don’t ask questions that violate laws. Only ask about things like pets or smoking. And make sure you’re consistent.

Why Do You Need to Run Background Checks?

Background checks in general are utilized by a variety of groups: landlords, employers, lenders, licensing agencies, government agencies, etc. Tenant screening or employment background checks are run to ensure that a candidate for a job, license, property, or loan is properly qualified and does not have a history of behavior that would interfere with their ability to perform the duties required under contract. Background checks minimize legal liability, protect companies’ assets and current employees, and are sometimes required by clients.

 

When it comes to landlords, background checks are needed to: 

1. • Protect the safety and property of other tenants
   • Reduce tenant turnover
   • Minimize legal liability
   • Increase the likelihood of on-time rental payments
   • Avoid conflict and crime in the rental community
   • Narrow down applicants for a high-demand property
   • Prevent expensive and lengthy eviction processes

Colorado Background Checks

Landlords in Colorado should run background checks on potential tenants as a precaution and general policy. Here are three reasons to run background checks in Colorado: 

1. Identify rental application fraud 

Rental application fraud, which occurs when a tenant lies on their application or submits falsified pay stubs, bank statements, etc., is on the rise across the country. According to recent data from Snappt, 85% of landlords and property managers report having experienced rental fraud in 2020. If a tenant lies on their rental application or submits fraudulent documents in Colorado, a credit check can uncover the truth before you allow the tenant to occupy your property. 

1. Avoid future evictions 

Running a tenant’s eviction history in Colorado can also help you avoid evictions for nonpayment or criminal activity. Last year, evictions in Denver were on track to hit an all-time high, with a projected 12,000 eviction filings in the city alone. 148,829 evictions were filed in county courts statewide from July 2017 to June 2021. 

Eviction in Colorado is a long and expensive process, taking anywhere from three weeks to several months. Because tenants with a previous eviction are more likely to be evicted again, running an eviction history as part of every background check in Colorado is essential for avoiding turnover. 

1. Learn about the existence or nature of illegal activity 

It’s also important to run criminal background checks in Colorado. Colorado has a large reentry population, with 227,437 releases from prisons or jails in 2019. Additionally, the three-year state recidivism rate in Colorado has been reported to be almost 45%, relatively high compared to other states. While landlords cannot have a blanket policy for denying convicts, certain crimes (like sex offenses) restrict convicts from certain housing options and are valid reasons to deny a tenant. 

What do Background Checks in Colorado Cost?

Background checks are relatively affordable across the U.S., but their costs vary depending on the area searched and the level of information requested. Searching national records typically costs between $13-60 per person, while searching an individual state’s records costs between $10 and $25 per person (criminal background check records can be requested from the Colorado Bureau of Investigation). County records, which tend to be more accurate and up to date, cost $16-$25 per person per county checked. You can learn more about each of these specific types of background checks in our article on the topic. 

Which Laws Apply to Colorado Background Checks?

Colorado background checks cannot be used by anyone for any purpose. Due to fair housing and employment protections, the use of credit reports and criminal background checks is restricted. 

Colorado Employment Opportunity Act 

The Colorado Employment Opportunity Act (CRS § 8-2-126) applies to public and private employers in the state with four or more employees (excluding state/local law enforcement agencies, banks, and a few other exceptions). It prohibits the use of credit reports during the hiring process unless the information is “substantially related” to the person’s current or potential job or is required by law. The position must constitute either executive personnel, management personnel, officers, or professional staff, and it must involve at least one of the following responsibilities: 

• Setting the direction or control of a business, division, unit, or an agency of a business 
• A fiduciary responsibility to the employer 

• Access to customers’, employees’, or the employer’s personal or financial information other than information customarily provided in a retail transaction 
• The authority to issue payments, collect debts, or enter into contracts 

Note that banks and financial institutions can still run credit checks for employees, as can employers in defense, intelligence, national security, and federal space agencies. 

If adverse action is taken based on credit check results, the employer must disclose this fact and the information that was the grounds for the denial. 

Equal Pay for Equal Work Act (EPEWA) 

This law also applies to Colorado employers. Passed in 2021, the Equal Pay for Equal Work Act supports women in the workplace by preventing employers from paying less for “substantially similar work in terms of skill, effort, and responsibility.” The law requires employers to list salaries on their job postings to increase transparency and prohibits them from eliciting salary information during the application or pre- employment verification process: According to the law, employers may not “[seek] the wage rate history of a prospective employee or [require] disclosure of wage rate as a condition of employment” (Colorado General Assembly).  

Statewide “Ban-the-Box” Laws 

Colorado has two state-wide “ban-the-box” laws, which protect those with criminal records from unreasonable discrimination. House Bill 12-1263 prohibits some employers from mentioning criminal records on job advertisements, running criminal background checks until a conditional offer has been made, and withdrawing/denying a job offer based on an arrest or non-conviction. Withdrawals/denials can only be based on convictions when the employer has considered all of the following: the nature of the conviction, its relationship to the job duties, the time elapsed since the conviction, and rehabilitation/good conduct shown. 

Colorado’s second ban-the-box law is the Colorado Chance to Compete Act (House Bill 19-1025). This law applies to all employers and prohibits them from stating on job advertisements or applications that people with criminal histories can’t apply. It also prohibits employers from asking about criminal histories on initial applications or running Colorado employment background checks in early stages of the application process. There are a few exceptions to these rules for pre employment background checks if the employer is required by law to act otherwise (e.g., the job is part of certain government programs or for one of the Colorado law enforcement agencies). 

Clean Slate Act (2022) 

The Clean Slate Act (Senate Bill 22-099) automatically seals court records for convictions after set periods (violent crimes excluded): 

• Civil infractions: 4 years after the final disposition 
• Misdemeanors: 7 years 
• Felonies: 10 years after final disposition or release from jail 

Employers or landlords running a background check Colorado considers compliant won’t be able to see sealed records if the designated length of time has passed and the records have been sealed. 

Know Colorado Background Check Laws 

Before you view criminal background records in Colorado, be sure you’re aware of the state and federal laws that apply to their use. Keep in mind that while all Colorado counties are subject to state-wide laws and executive orders, some counties may enforce additional regulations. Additionally, you must get written consent from an applicant before running a tenant or employment background check. Be sure you’re educated on the law in your region and adhere to the HUD’s recommendations if criminal history records are part of your tenant screening process. 

How far back do Background Checks in Colorado go?

When you use consumer reports to make tenant decisions, you must comply with the Fair Credit Reporting Act (FCRA). 

  

Section § 605 – 15 U.S.C. § 1681c of The Fair Credit Reporting Act (FCRA) applies in all 50 states and mandates a seven-year restriction on reporting certain background check information like civil suits, civil judgments, and arrest records (except in certain cases where an employer is hiring for a job with a salary more than $75,000). The FCRA doesn’t have similar timeline restrictions on criminal convictions, but some states restrict reporting conviction information at the state or local level. There are no notable state laws to this nature in Arizona, but individual cities or counties may have additional restrictions. 

 

Colorado is one of the states with additional restrictions beyond the FCRA. Due to the state’s Clean Slate Act (see above), criminal records are automatically sealed after certain lengths of time. As listed above, landlords and employers in Colorado will be able to see civil infractions up to four years back, misdemeanors up to seven years back, and non-violent felonies up to ten years back. Violent crimes are never sealed.  

How to Run Background Checks in Colorado?

When you need to conduct background checks in Colorado, most people either conduct a DIY background check or use a third-party provider. If you run a DIY background check, your best bet is probably to request criminal history from the Colorado Bureau of Investigation, contact an applicant’s former landlords and employers, obtain a credit report (Equifax, Experian, and TransUnion are the three major credit reporting agencies that compile credit information), verify income, look at the sex offender registry, and ensure you have all the information you need to conduct thorough tenant screening. DIY checks can be risky, though, because it’s easier to run afoul or relevant laws inadvertently (unless you’re very well-versed in the law).  

The better option for running a background check is to partner with a third-party provider, who often bundle credit, resident, criminal, and eviction histories together as a package. You can select the kind of reporting you need and let the third-party take care of the collection process. 

Background Checks with Innago

At Innago, we’ve partnered with TransUnion SmartMove to help you review background check information and identify high quality applicants. Running a background check through Innago allows you to quickly and easily identify the best applicants and ensure their application information is accurate. Likewise, Innago’s income verification feature helps our users verify reported income by connecting to their bank account, payroll provider, or by uploading documents. 

 

Disclaimer: This article is for educational purposes only and does not constitute legal advice. We recommend you consult with professional counsel if you have legal questions regarding your specific practices and compliance with relevant laws.