Are you thinking about applying for a credit card? Or maybe you’re looking to take out a loan? In either case, your credit score will be a key factor in the decision-making process. Here’s everything you need to know about credit reference, including what it is and how it can affect your chances of being approved for a loan or line of credit.

What is a Credit Reference?

According to Lantern by SoFi, a car loan refinancing company, a credit reference is a record of your credit history that lenders will use to decide whether to approve you for a loan or line of credit. This record will include your credit score, credit utilization, and any past defaults or missed payments.

When Do You Need Credit References?

You may be asked for credit references when you apply for a loan or line of credit, or when you renew or update an existing loan. Here are some other instances where you may need to produce credit references.

  • Rental applications
  • Loan applications
  • Utility services

Types of Credit References

A credit reference request can come in various forms. You’ll need to provide different types of credit references for different situations.

Credit Report

A credit report is a detailed document that summarizes your credit history, including your credit score, credit utilization, account age, loans, credit queries, and any past defaults or missed payments. Any unfavorable signs like many credit inquiries or a huge debt will raise a red flag with a lender and reduce your chances of acceptance.

Asset Documentation

If you’re looking to borrow a loan and have assets such as property or money in the bank, you may be asked to provide their respective documentation. This could include a copy of your property title or a letter from your bank confirming your account balance.

Financier Support

Since it is exclusively utilized by companies, financier support is a less common credit reference. Instead of providing a document of accounts, firms might request that their lenders or investors produce a statement of the capital available to them. These materials are thought to be extremely reliable for approval.

Character Reference

A character reference is a credit reference acquired from a past lender, like a landlord or an employer. It helps emphasize your personality and responsibilities, such as your ability to handle assignments and make payments promptly.

However, it is less effective as it doesn’t provide precise financial information like a credit report or asset documentation. On the flip side, character references might give further context or clarify certain items on a credit report that could otherwise appear to be a red signal.

Tips To Secure A Credit Reference Letter

Credit references are almost always necessary whether getting a loan, a mortgage, or a job. Here’s how to get a credit reference letter and ensure it meets all prerequisites.

First, contact your past lenders and landlords in advance. This will give them enough time to generate a reference letter for you.

Second, if you’ve had a positive payment history with a particular company, ask if they would be willing to provide a character reference letter.

Third, keep all your correspondence with lenders and landlords, including copies of reference letters. This will come in handy if you need to dispute any negative information on your credit report.

Last but not least, always be sure to pay your bills on time and keep a healthy credit score!