Whether you're a landlord doing a credit check properly means considering the strong protections for consumers and potential employees that are built into federal regulations.

Even when you run a credit check, you still need to be prepared for what to do with the results. Does a bad credit history automatically disqualify someone from doing business with you? Or is it just the start of a bigger conversation?

Financial experts say to follow these steps to get the most out of your credit checks:

Running a Credit Check: Have a Permissible Use

The Fair Credit Reporting Act dictates what constitutes a permissible use for credit reports: in connection with a credit transaction; employment purposes; underwriting of insurance; professional licensing; account review or other legitimate business needs.

Even beyond that, you need to make sure the credit report is for a relevant purpose and that you're not arbitrarily digging into someone's financial history. For employment, only potential employees who are seeking jobs related to financial responsibilities should be subjected to a check, says Jared Callahan, director of client relations for Employment Screening Resources.

"If you've got ditch diggers out in the middle of nowhere, a credit check might not be relevant," he says.

Credit checks are common for landlords who are screening potential tenants; some companies also use them before entering into long-term financial contracts with clients. Ken Lin, CEO and founder of Credit Karma, says you don't want to be perceived as abusing credit checks.

"Outside of those realms, you really shouldn't be pulling credit on other people," he says.


Dig Deeper: States Propose Limiting Credit Checks by Employers


Running a Credit Check: Get Permission

Federal law requires you always disclose when you are seeking to run a credit check on someone. You need to get their permission in writing too—you'll need some of their information anyway since most credit checking agencies require a full name and Social Security number.

"The candidate's rights are absolutely bulletproof protected by the Fed and the state you are in," Callahan says.


Dig Deeper: How to Create a Smart Credit Policy


Running a Credit Check: Find a Service to Use

Once you have permission, seek out one of the several credit-reporting agencies and websites, including the three main reporting agencies: Equifax, TransUnion, and Experian. If you're running a check on a potential employee, screening services such as Employment Screening Resources provide the special employment-only credit checks, along with other background information.

The turnaround on credit reports is faster than it's ever been, but Susan Henson, director of public relations for Experian, says to be patient.

"Allow plenty of time," she says. "The processes are strict because of the sensitive nature of the data we maintain and protect."

The services charge a fee to run a check, usually between $8 and $20.


Dig Deeper: How to Assess the Credit Risk of Your Customers

Running a Credit Check: Interpreting the Results

Lin says your standards for weighing the results need to be established before you start running credit reports.


"You should have a consistent threshold of what a good score is," he says. "You don't want to be discriminatory of how you do it."

If you go through one of the main credit reporting agencies, you'll get back a document that's coded for easy digestion, Henson says. Mostly it will be a ranked system: a rating of 1 is the best and means debt is paid on time, all the time; a 9 means there's tons of bad debts and late payments.

Financial experts warn against jumping to a conclusion, no matter what the report says. Up to 75 percent of all reports contain incorrect information, from the wrong home address number to inaccurate bankruptcy details, Callahan says.

"You really have to take a credit report with a grain of salt," he says.

It's important to have a plan in place and a set of standards for what items will signal red flags.

You have to give the subject of the report a chance to respond too. They should be able to produce authentication for any debt payment plan or other major financial points that appear on the report, Callahan says.

The report should be the start of the conversation, not the end of it, Lin says.

"Ten percent of the country is unemployed right now," he says. "A lot of people have very good reason as to why they might not be paying their bills on time."


Dig Deeper: Cleaning up Your Credit

Running a Credit Check: Do a Test Run


You can get a sample of what to expect by running your own personal credit report. The Fair Credit Reporting Act allows consumers to receive one free credit report a year, and some agencies will give you a free credit score more frequently.

Running your own check lets you keep an eye on your own financial issues such as identity theft, while making you aware of the potential for inaccurate information.

"We have a very good record as far as accuracy, but when you're dealing with as many files and entries as we are, sometimes things happen," says Tim Klein, vice president of public relations for Equifax. "It makes sense to check and make sure it reflects your situation."

Government regulations make it easy to go online and contest the details of your report, he says.

"From a small business standpoint it's an absolute no-brainer," he says. "Just in the overall view and picture and understanding your financial picture, it's important to know what your credit score is."


Dig Deeper: Two Ways to Get Free Credit Scores