6 Min Read | Published: May 8, 2024
What Is a Credit Reference?
A credit reference is a document, person, or company that provides information on an individual's credit history. Lenders, landlords, and others can request them.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
A credit reference provides information on an individual’s credit history.
Credit references can take the form of credit reports, asset documents, and character references.
A credit reference may be required if you apply for a loan or credit card, or if you’re applying for a new lease, utilities, or job.
Lenders and credit card companies don’t extend credit to just anyone. There’s a process to getting approved. A credit reference is a part of that process that gives them a quick look at your creditworthiness. That can also be useful to a landlord, utility company, or potential employer. In this article, we’ll look at what a credit reference is and how they are used.
What Are Credit References?
A credit reference can help a lender, potential landlord, utility company, or employer gauge your creditworthiness, or ability to repay money that you borrow.
An example of a credit reference is a credit report issued by a credit reporting bureau. Other types of credit reference are asset documents and character references.
Lenders will typically require a credit reference when assessing the risk of issuing an applicant a loan or credit card. Landlords may also use them when assessing prospective tenants. Utility companies and employers may also require them.
Types of Credit References
There are three primary types of credit references. Here’s a breakdown of each:
- Credit reports
A credit report may be required when applying for credit, such as a loan or credit card. Credit reports are issued by the three main credit reporting bureaus: Experian®, Equifax®, and TransUnion®. These reports contain the information used to calculate your credit score. Lenders and credit card issuers may also request your credit score during their decision-making process.1
- Character references
Credit references don’t always take the form of a paper document. Sometimes, they could involve contacting people by phone to verify information. A character reference may involve contacting your previous landlord, employer, or lender.2 In some cases, a character reference can be given in the form of a letter.
- Asset documents
Your bank or credit union can generate asset documents that break down your net worth. This document will contain a list of your assets, including checking, savings, investment, and retirement accounts.3
When Do You Need a Credit Reference?
You might be asked to provide a credit reference in several different scenarios. Here are some situations where you may encounter this:
- When applying for a credit card
Credit card issuers can do a soft inquiry on your credit by simply checking your credit score. When they do the hard inquiry before final approval, they’ll typically need a credit reference. Usually, this will be your credit report.
- When applying for a loan or mortgage
The approval process for loans and mortgages involves more than credit card approval. Some lenders require several credit references, including credit reports and asset documents.
- When renting a home
Landlords protect their real estate investments by looking for qualified tenants who pay their rent on time. A credit reference can tell them if a prospective tenant has a history of doing that.
- When signing up for utilities
Some utility companies may require a credit reference before taking on a new customer. They may not always refuse you if you have bad credit, but they could ask for prepayment to start your service.
- Employment
Some employers require a credit reference before they hire you. You can expect this in roles where you may have access to financial information, assets, or cash.
How to Get a Credit Reference
How to go about obtaining a credit reference will depend upon which type of credit reference is being requested.
For credit cards and loans, a lender will typically pull your credit report themselves.
When obtaining an asset statement, you’ll need to request the documents yourself through your bank or broker.
When it comes to character references, you may be able to obtain a letter from the party in question. Alternatively, your prospective landlord or employer may instead request your reference’s contact information so they can speak to them themselves.
A credit reference can help or hinder your chances of obtaining credit, a mortgage, apartment, or job. Consider checking your credit report first to see what information is on there. Checking your credit report may also help you to identify mistakes or inaccuracies, which you could correct; something that could help your credit report.
Frequently Asked Questions
A letter of credit is a letter from the bank guaranteeing that the seller will receive payment from the buyer. A credit reference can show the past credit history of a prospective borrower or testify to their character. This helps the lender assess the risk of lending to the individual, but it’s not a “guarantee” of repayment like a letter of credit.4
A credit reference when renting could be a person or business that you’ve done financial transactions with, who can provide information about you to your prospective landlord. This may include a previous landlord, business partner, or employer. The type of character reference required may vary, depending on the prospective landlord’s requirements.
The Takeaway
Credit references are typically required to approve a credit card, personal loan, or mortgage application. They may also be part of the approval criteria for securing a new job or getting your utilities turned on. You may need a credit report, asset documents, a character reference, or any combination of the three, depending on the situation.
1,2,3,4 “Credit Reference: What it is, Effect on Credit Score,” Investopedia
Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts, with his wife Evelyn, two cats, and ten wonderful grandchildren.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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