What Is a Credit Reference?
If you're planning to apply for a loan, credit card, or apartment, you may be asked to provide a credit reference.
Like a credit report, a credit reference gives potential lenders, landlords, and employers a quick look at your creditworthiness, which indicates how reliable you are financially.
Keep reading to learn more about what a credit reference is, how it works, and why it's important.
What exactly is a credit reference?
Credit references are documents or people attesting to how reliable you are in terms of meeting your financial commitments. The most well-known credit reference is your credit report, but any document that details your financial behavior can serve as a credit reference.
How does a credit reference work?
It depends on the type of credit reference.
In terms of your credit report, if you miss any loan or credit card payments, your lender may report the activity to the major credit bureaus. Those missed payments will appear on your credit report, causing your credit score to drop. If a prospective employer or landlord uses your credit report as a credit reference, they could deny your application.
However, let’s say you have a poor credit score, but you’ve paid your rent on time every month for years. If you plan to move to another apartment complex and are worried about the credit check, you might ask your current landlord to write a credit reference letter for you.
Remember, you can improve your credit references by making your payments on time for things like rent, your mortgage, credit cards, and personal loans. When you have a good credit report, it may be easier to secure loans with favorable interest rates.
When will I need a credit reference?
You may need to share a credit reference when you:
Apply for a loan
Lenders often want to see your credit report when you apply for financing. That’s because having a bad score indicates that you may have had issues repaying your debts, which means you may not repay the amount you borrow from them. If you have a good score, lenders are more likely to approve you for loans because you've shown the ability to repay your debts.
Apply for a credit card
Credit card issuers will also want to see your credit report and FICO credit score before issuing you a credit card. If you’re denied due to poor credit, you might be able to get a secured credit card instead.
Rent an apartment
Landlords and property management companies might want to see your credit report when you apply for housing. Your credit score indicates how reliable you might be in terms of paying rent each month, so it can affect your deposit amount or even your ability to rent.
If you have a bad credit score, for example, you might be required to pay several months’ rent in advance just to move in.
Connect utilities
Certain utility companies, such as those that provide electricity, gas, and water, will check your credit score before connecting services. They do this to determine the amount (if any) of the deposit you’ll need to put down when opening a new utility account.
Seek new employment
Depending on the employer, you might need a credit reference when applying for a job. Prospective employers don’t necessarily pull your credit report for financial reasons; instead, they want to get a good sense of how dependable you might be as an employee. A good credit reference indicates that you’re reliable, responsible, and diligent – all qualities a potential employer wants in their employees.
Are there different types of credit references?
There are several types of credit references, including:
Credit reports
As we’ve said, credit reports are the most common type of credit reference, so much so that the terms are often interchangeable. A credit report is a detailed history of your finances and includes everything from loans and credit cards to mortgages and payments. The three major credit bureaus, Experian, Equifax, and TransUnion, create and determine your credit reports.
Personal references
Anyone willing to vouch for you regarding your financial and personal reliability can provide a credit and/or character reference. These can include former landlords, renters, lenders, and employers.
Asset documents
As the name implies, asset documents are documents having to do with your finances and assets. These documents can include bank account statements, stocks, your investment portfolio, and your retirement account. The more financially stable you are, the more asset documents you will likely have.
Can anyone see my credit report?
The short answer to this question is no, not just anyone can see your credit report. Instead, someone needs a "permissible reason" to access your credit references. Those who can access your credit history include:
- Lenders considering you for a loan
- Renters considering you as a tenant
- Creditors thinking about issuing you a credit card
- Utility companies considering you as a customer
- Debt collectors or legal entities
In most other instances, you must give written consent before someone can see your credit report.
Can I check my own credit?
Yes, you can check your credit at any point. Checking your own credit is a good idea because it will help you know if you need to improve your credit score before applying for any type of financing.
You can check your credit report by visiting AnnualCreditReport.com and requesting a free copy. If you simply want to check your credit score, you can usually do so through your existing credit card issuer.
Can I get a loan with a bad credit reference?
The main reason it's helpful to have a good credit reference is so that you can qualify for financing when you need it. Many lenders won't even consider you for a loan if you have a bad credit score, while others may charge a higher interest rate.
Get a Personal Loan from Advance America
If you’re worried about having poor credit references, you can still apply for a loan with Advance America. We work with borrowers from all credit backgrounds, helping you access the money you need when you need it.
Are you ready to get started? Apply today!
