A credit reference attests to the credit worthiness of a prospective borrower or rental applicant. It can be a document, such as your credit report, or even a reference from an entity like your credit card company. 

Credit references are used by a lender to minimize the risk they’re taking on and, while a credit report is the most popular form of a credit reference, multiple different types exist and can even be combined if a single credit reference isn’t the most favorable. 

Types of Credit Reference

Credit Report

Because your credit report is the most popular form of credit reference that exists, it’s important to know and understand every aspect of your report. Using free credit report services, you can review your report and ensure that each aspect of the report is accurate and that any negative items are also up-to-date, i.e., the amount of debt you have, etc. 

Lenders are most likely to look at the amount of debt you have, the number of credit inquiries you have, and your credit score.

Character References

A character reference doesn’t have the same weight as a credit report, when it comes to credit references, but it is nevertheless useful if you’re a recent grad whose credit score is only just being built up or if there are negative aspects to your credit report that you’re hoping to minimize. 

Your character reference should address your responsibility with money but can be tailored depending on your situation. If you’re applying for a lease, for instance, a reference who can speak to your respect for property would be useful. 

A credit card company or former employer may be able to better speak to your ability to pay back a loan if that’s what you need a credit reference for. As such, choose your reference wisely based on the situation you’re in. 

While many character references may be contacted via phone, they are also likely to be contacted by email — or your character reference will need to submit a credit reference letter upfront. When requesting this credit reference letter, confirm the requirements with your lender, first, so that your reference has all the information they need. 

Moreover, not only is it important who you select to write your credit reference letter, but it’s also important for them to address any negative information in your credit report. While positive elements are crucial to highlight, by addressing the negatives head-on you can assuage any concerns the lender may have. 

Make sure your credit reference letter addresses the type and length of the relationship you have with the character reference, confirms your payment behavior, and has any account information needed to verify your credit history. 

Who can be a character reference? As mentioned above, a credit card company, former employer, former landlord or landlady, or professional acquaintance who can speak to your character and ability to pay bills on time would be a good character reference to have.

Avoid asking your family or friends to be references. Instead, even consider a college professor who can speak to your good grades and diligence in class. Each of these options will make your application more likely to be approved. 

Loan companies may not always call your character references, but more likely than not they will ensure that (1) your references are aware that they’re being put down as your character reference for a credit reference and (2) give them the appropriate information they need to be an effective reference.

Not only is it impolite and unprofessional to have a character reference be called out-of-the-blue, but they are unlikely to be effective if they don’t know the situation or the information that the lender is specifically looking for.

Documentation

Finally, make sure you have documentation on hand such as income statements, tax returns, or copies of any investments you have that can prove that you’re able to pay back a loan or would make a responsible tenant. 

What is a Credit Reference on a Rental Application? 

On a rental application, you will likely need proof of income in the form of pay stubs and should expect a soft pull on your credit report for your prospective landlord to see your credit score. 

You can also expect to list prior landlords or landladies as references, though you can always add a professor or credit card company to speak to your ability to pay on time if you haven’t had a landlord or landlady in the past, or if you’ve moved frequently and those references can’t speak to your character as well.

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Ultimately, a credit reference is an essential document to have. Even if you’re not confident that your credit report can sufficiently speak to your ability to maintain credit and pay bills on time, there are multiple other ways to provide a credit reference.