Who Should You Use as a Credit Reference?

A credit reference serves as a testament to an individual’s or business’s financial reliability and trustworthiness. This information helps lenders, landlords, or vendors assess the risk associated with extending credit or entering into an agreement, aiding in informed decisions about an applicant’s ability to meet future financial obligations.

Understanding Different Types of Credit References

Credit references come in various forms, each offering a distinct perspective on an applicant’s reliability. Trade or vendor references highlight a business’s payment history with its suppliers, demonstrating consistent payment for goods or services purchased on credit terms, such as net 30, from entities like office supply companies or raw material providers.

Financial references typically come from banks, credit unions, or other lending institutions. These references provide insight into an applicant’s banking relationship, including average account balances, loan repayment history, and any instances of overdrafts. Such information helps assess an applicant’s overall financial management.

Personal or character references are provided by individuals who know the applicant well, though not necessarily in a financial capacity. These references attest to an applicant’s general character, reliability, and trustworthiness. Examples include former employers, mentors, or close acquaintances, but generally exclude family members, as their objectivity might be compromised.

Information Provided by a Credit Reference

The specific details a credit reference provides depend on its type, offering a tailored view of an applicant’s history. For trade or vendor references, the focus is typically on payment promptness, the highest credit amount extended, current outstanding balances, the length of the business relationship, and payment terms.

Financial references usually disclose account details such as the duration of the banking relationship, average account balances, and the history of loan repayments. Information regarding credit limits and any instances of overdrafts or late payments on financial products is commonly shared.

Personal or character references provide non-financial insights, focusing on an applicant’s reliability, responsibility, and work ethic. They might also comment on communication skills, honesty, and overall character. The duration and nature of the relationship between the applicant and the reference are also communicated, providing context for the assessment.

Preparing Your Chosen References

Before submitting your credit references, take several steps to ensure a smooth process. Always obtain explicit consent from individuals or entities you plan to list as references. This professional courtesy ensures they are prepared for contact and willing to provide accurate information.

Brief your references on the application’s context, such as whether it is for a loan, rental, or vendor credit. Inform them about who will be contacting them and the specific types of information that might be requested. This context helps them tailor their responses to the inquirer’s needs.

Supply your references with any necessary identifying details, such as account numbers or business names, to help them quickly verify their relationship with you. Confirm their most current and accurate contact information, including phone numbers and email addresses, to prevent delays. Expressing gratitude for their time and assistance is a thoughtful gesture.

Matching References to Application Needs

Different applications often require specific insights, so select the appropriate credit reference type. For business credit applications, such as those for lines of credit or vendor accounts, trade and financial references are typically preferred and sometimes mandatory. These references offer direct evidence of a business’s payment history with suppliers and its banking relationships.

Rental applications frequently request previous landlord references to verify rental payment history and tenancy behavior. In some cases, landlords may also seek personal references to assess an applicant’s character and reliability.

If supplementary information is requested for personal loan applications, financial references from other lenders or character references might be sought. Always carefully review the application requirements to provide the specific types of references requested.