What Is Credit Reference?: Types, Examples, & All You Need To Know

What is a credit reference

A credit reference is a document that carries information that can verify an individual or organization’s creditworthiness. When it comes to lending and borrowing, the person or organization lending out money will want to know how creditworthy you are. This means your past financial records will be called into question, which will help them minimize the risk of putting their money in the wrong hands. When we talk of lenders, they are banks, loan sharks, and other financial organizations able to give loans. This article will give more insight into credit reference, their use in making a rent application, and how to clear them with the credit bureau.

What is Credit Reference?

A credit reference is a document that verifies an individual or business’s creditworthiness.

Credit Reference can also be said to be information that can be a name of an individual or a name of an organization that can provide the individual or organization’s past credit record. Credit Reference is provided by the credit bureau for individuals and credit rating agencies for companies and organizations.

Banks also provide letters of credit reference, which provide information about the history of the applicant’s account, how long the account has run, type of account, account balance, if the applicant can redeem the loan, if there has been a previous loan: how and if it has been paid. Late payments and overdrafts are also taken into proper consideration. Previous landlords can also write a credit reference.

Note that all these explanations are to tell you that Credit Reference provides your financial history and will be written by anyone you are financially related to. It will support your rental application and any loan requests. because it will show how credit-worthy the applicant is.

Types of Credit References

Credit Reference is just a canopy harboring different kinds of “letters of creditworthiness and good standing.” Here are some types of credit references you need to know.

#1. Credit Report:

This is the most popular and used credit reference letter. A credit report provides the debt information of an applicant looking to borrow a loan and his debt management. It also reviews and shows the applicant’s account state and payment history.

A credit report is a very important factor in an individual’s credit score, which gives him/her the ability to borrow the loan needed. Smartcredict.com is one of the popular ones to use when it comes to calculating your credit score in America.

#2. Financial support documents:

These documents come from investors or shareholders that provide financial cover or support. This is important for businesses or organizations applying for loans and it acts as a great recommendation for them.

#3. Personal character reference:

This is the document requested about an applicant’s character from a former lender. It can be your landlord or employers. This document clarifies your character, how responsible you are, and how you paid your previous loans and other payments. How you manage tasks.

This will help the lenders evaluate and decide if you are qualified to obtain their loan. This document is mostly not about your financial statement. It’s more about your attitude and how you handle your shits.

#4. Credit bureau:

A credit bureau is an agency that is in charge of collecting the data of various creditors and providing the information to a consumer reporting agency in the United States. This explanation will help you understand what it means to clear your credit report with a credit reference bureau.

Examples of Credit Reference

To further understand credit reference, let’s look at the day-to-day life activities we do that have financial implications.

#1. Utility provider’s credit reference:

James Osborne has been using the same cooking gas provider for a very long time now but has moved from his former place. Now he wants to register and start using a new gas provider in his new location. The new gas provider is requesting a credit reference from James Osborne’s old gas provider. The credit reference will go like this:
” James Osborne has been using our company since 2009 and has never missed any payment and always paid on time too.” We have cross-checked his records and there is no debt record. He is creditworthy. Thanks”

#2. Rental arrangement credit reference:

Didier Sachs’s clothing line wants to establish a new branch in Atlanta, US. The owner of the building they want to rent in Atlanta is requesting a credit reference letter and their landlord in Los Angeles writes thus;
“Didier Sachs clothing line has been using our building since 1998 and has never been behind in paying their lease. Their lease is paid annually as stipulated in my contract with them and I have checked my books they have never owned so go ahead and accommodate them. They are a good tenant”

#3. Bank loan credit reference:

Mr. Jones is a customer of Bank of Los Angeles but it happens that he just moved to Atlanta. He went up to south state bank and opened an account with them. After some months Mr. Jones wanted to enlarge his business now based in Atlanta, Georgia. And he went up to his new bank south state bank to obtain a loan for his business and they are requesting a credit reference letter from his former bank. Bank of Los Angeles wrote this;

“Mr. Jones was one of our trusted and creditworthy customers before he left town. His current business came into play with a loan we gave him four years ago for $700,000 at an interest rate of 10.5%. We gave him 2 years to pay back his loan and interest, and he redeemed his loan and interests in a year and 7 months. And his account volume and assets speak volumes. I am sure he will redeem the load; grant it to him. “
I hope these examples will help you understand what a credit reference is all about. To further explain it let’s discuss the types.

How to get a Credit Reference

The only secret on how to get a good credit reference is your credibility and get your reference from a credible and impartial source. That is the key to a good credit reference that will help you get a loan.

A letter of reference from your parents or friends will not aid in your quest to influence a lender or landlord. The best credit references come from your bank or a previous lender. Banks are asked to provide credit references all the time so it’s usually easy to get one, ask the bank manager. They will usually have a standard template reference they can print out quickly.

If you’ve had any loans from local businesses, car dealers, or store credit, these can also make for good sources of references. Your employer can be a source for a character reference. However, they usually don’t know enough about your credit to vouch for your finances.

How to Clear with the Credit Reference Bureau

How to clear with the credit reference bureau is a step-by-step process. I have highlighted above what a credit bureau is and its work. This process will help you become eligible to collect loans at any time and become credit-worthy.

To clear up your credit reference bureau, you have to search through your credit documents and make sure all the information there is correct. While credit documents are usually current, you must be mindful of the information they contain. Some simple mistakes that people overlook do exist, such as an account opened that they forget. They don’t even operate it, leaving it bankrupt, and also with late payments. They thought they paid early but it is a late payment.

These kinds of caches must be spotted and deleted. I will outline below how to clear with credit reference bureaus and prominent companies to use.

#1. Submit a dispute to the credit bureau:

The Fair Credit Reporting Act FCRA is a federal law that tells you the type of information that you need to provide in your credit report and the duration (generally 7 years).

This law states that you have the right to an accurate credit report. Giving you the power to clear or dispute your credit reference errors or cache with the credit bureau.
Clearing with a credit reference bureau is easiest via mail or online. But first, you have to request your credit report from a credit bureau you are using. Make a dispute and submit it back to them. This is when you are using the online method.

Using the mail, you will write a letter describing the credit report. Submit it alongside corresponding documents to show proof to clear up the negativities in your report. When the credit bureau receives your mail, they will investigate your credit report and remove any wrong entry found if there’s indeed one.

#2. Request for a goodwill deletion:

In this case, you pay money to settle with the credit reference bureau. Money acts as your bargaining chip for clearing negative information from your credit report, but if you have paid the account already, then you don’t have much negotiating power. However, you can request mercy by asking for a goodwill deletion.

Therefore, ask the creditors in your letter to have mercy and explain why you were late or behind in your last loan payment and then request that they be favorable in reporting the account. Some creditors won’t comply, while some will. But if you talk to the right person, your credit errors will be cleared and your account reported favorably.

#3. Make your creditor a pay-for-delete offer:

This is another way to make things clear with the credit reference bureau. You have to approach accurately reported negative information differently. Credit bureaus often don’t remove accurate, verifiable information even if you dispute it (because it is the investigation that will verify the accuracy of this information), so you may have to negotiate to have some things removed from your credit report.

Pay for delete is a technique you can use with delinquent, or past-due, accounts. In the pay-for-delete negotiation, you offer to pay the account in full to remove negative pieces of information from your credit report. Some creditors will take you up on the offer.

#4. Dispute With the Business That Was Reported to the Credit Bureau:

With this method, you can get past the credit bureau and dispute directly with the business that reported the error to the credit bureau, e.g., the credit card issuer, bank, or debt collector. You can put the dispute in writing, and the business will do an investigation just like the credit bureau. This method also works perfectly.
Meanwhile, credit bureau companies like Experian, Innovis, TransUnion, and Equifax are the best when it comes to clearing errors in the credit report as they send monthly and yearly notifications of your credit report and help in clearing them too.

Rent Application Credit Reference

Rent application credit reference comes under the umbrella of landlords and properties available for rent. It might be a building, an apartment, a folded company, or even an empty lot. Anybody that owns them is a landlord. And they are the ones you will have to meet whenever you want to rent their property. Your financial institution or your previous landlord will give you a credit reference report to present you as a low-risk tenant. I made an example of that earlier with “Didier Sachs clothing line.”

The landlord will screen the rent application credit reference, which will include your financial history and credit history, to determine if he/she is a low-risk tenant. If the landlord detects bad information like late loan payments and late regular payments, The landlord will automatically regard you as a high-risk tenant and reject your rental application.
However, as a tenant or a landlord, you need to have very good knowledge of rent application credit references. So, to know how to prepare a good rent application credit reference as a tenant and how to prepare and screen a rental application form as a landlord.

Conclusion

Being creditworthy is a virtue on its own and it takes character to achieve that. Having a good credit reference comes down to fishing out all pertinent information in your credit report.

Submitting information promptly, providing clarification on everything in your report in case you are not found creditworthy. And most importantly, being transparent.

Be true to yourself before submitting any credit reference. Because any falsified information will be detected during checks and your application will be rejected.

Consult and register with any of the credit bureaus for a monthly and yearly checkup on your credit report. It will help keep your credit reference record 100 percent clean.

If you are in Atlanta, you can consult Equifax on the phone line 866-349-5191. Or by mail at P.O Box 105788, Atlanta, GA 30348. They are the best in Atlanta and are among the top 4 credit bureaus in America.

Credit Reference FAQs

What is the purpose of credit refrence?

Credit reference helps you keep your financial records in check to be creditworthy at all times.

Who should issue a credit refence?

The credit bureau mainly issues credit references. But financial organizations like banks can give it. Previous landlords or utility providers can also do that.

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