Credit reference definition

What is a Credit Reference?

A credit reference is a person's prior borrowing history, used as proof of creditworthiness in a credit application. Credit references are a common component of the credit applications of creditors and lenders. A credit reference can be a simple statement of contact information, which is used to contact an individual or business for a verbal reference; it can also be in the form of a letter, in which someone attests to the creditworthiness of the person or business in question.

When is a Credit Reference Needed?

Credit references are more likely to be used when someone is applying for a substantial amount of credit, which is when the creditor or lender wants to spend more time exploring every aspect of the person's repayment history. Here are several situations in which a credit reference is more likely to be requested:

  • Applying for a loan or credit. When you apply for personal or business loans, credit cards, or mortgages, lenders usually ask for credit references to determine your ability to repay the debt.

  • Renting a property. Landlords often request a credit reference or run a credit check to assess whether a potential tenant is financially reliable and can make regular rent payments.

  • Opening utility accounts. Utility companies (e.g., for electricity, gas, water) may ask for a credit reference or conduct a credit check to decide if a deposit is required for new accounts.

  • Leasing a vehicle. When leasing a car, leasing companies may ask for credit references to confirm the applicant's financial reliability.

  • Applying for business credit. When a business seeks to open a line of credit with suppliers or financial institutions, a credit reference or business credit check is typically needed.

  • Employment background checks (for financial roles). Some employers, especially in financial or high-responsibility roles, may require a credit reference to ensure the candidate is financially responsible.

  • Getting insurance. Insurance providers may ask for credit information to assess risk levels when issuing policies, especially for home or auto insurance.

Credit Reports

A more formal version of a credit reference is a credit report, which is compiled by a third party credit reporting agency that specializes in such information, such as Experian, Equifax, and TransUnion. A good credit report for an individual typically is considered to be one with a credit score of at least 700. Anyone who intends to borrow funds should first check their credit report to see if any issues should be resolved first.

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