Below, we offer suggestions that you can use to improve the success of your credit references and increase your chances of securing a loan, a service, a rental space, or any other service you might be hoping to acquire. A credit report is the most widely used credit reference and has a big impact on the outcome of a loan or rental application, or a service request.
Review your credit reports frequently. There are several tools that provide free credit report assessments. Ensure that your reports are error-free and contain no evidence of fraud, as both can bring down your credit score. If you notice issues, contact the respective credit bureau to rectify any problems.
Ensuring your credit score is in good standing is vital, as lenders, service providers, landlords, and even employers are more likely to approve your requests when your credit is in good standing. If your credit is less-than-perfect, try to improve it. Paying your bills in a timely manner, paying down debts, and eliminating outstanding balances may have a positive impact on your credit score.
Hold off on acquiring future debt, especially if you are attempting to secure a loan. If you do acquire new debt, such as a credit card, make sure you manage it wisely. If your current credit report is lacking, consider building your credit with a secured credit card. This type of credit card can be an effective way to establish your credit when used responsibly. Although character references may not have as much weight as a credit report and other more effective credit references, they can be valuable assets.
Character references can explain any concerns that pertain to your credit history. Character references can also illustrate the ability to manage responsibilities, which can be especially helpful for individuals with limited or non-existent credit histories. If your loan or service request is refused, you can ask the entity that turned down your application to reconsider your application. Send a reconsideration request, along with reliable character references, to the entity that has denied your initial request.
Explain any shortcomings that may have led to the refusal of your initial request. Provide documentation that supports extenuating circumstances. Send character references that highlight illustrate your track record of managing past debts and other obligations.
These documents may encourage the entity to change its initial response to your application request in your favor. If you are applying for a loan, a service, or a rental property, you will likely be asked to provide a credit reference. The following tips can be used to secure a credit reference and ensure that it fulfills the requirements of the requesting individual or entity.
Verify the reference requirements of the lender, landlord, or service provider. Some entities that require reference letters offer templates that previous lenders, service providers, employers, and other reliable resources can fill out with the necessary information.
Make contact with the previous employer, service provider, landlord, or another reliable individual you intend to use as a character reference. If he or she agrees to provide a reference, share instructions or a template to ensure that you comply with your credit reference letter requirements. In order to release information about account histories, you may need to provide permission.
Find out whether or not you do need to issue authorization, and if so, how you grant permission. You may be able to issue authorization online, or you may be required to fill out certain forms, for example. In addition to credit reports, other types of credit references include asset documentation, financier support, and character references. These are the most common situations in which you would need a credit reference:. A request for a credit reference can come in many different forms. Different types are used in certain situations and all of them have varying levels of effectiveness.
Read below to explore each type of credit reference in greater detail:. Within a credit report, potential lenders will review certain factors such as the age of your accounts, debts, and credit inquiries. Any negative signals, such as a high number of credit inquiries and a large amount of debt will be viewed as a red flag to a lender and will lessen your chance of approval.
In this case, obtaining official documentation of a large savings account can prove the creditworthiness of an applicant. For example, individuals who have a substantial amount of assets have a higher chance of being able to pay their bills in the case of a change in financial circumstances. This is a sign to lenders that the individual is likely to be a reliable borrower, thus having a stronger chance of an approved application.
Types of assets that can be documented include retirement plans, mutual funds, stocks, and checking and savings accounts. Similar to asset documentation, these credit references are also obtained from a financial institution.
Instead of documents of accounts, the businesses can have their lenders or investors present a statement of the capital available to the business. These documents are considered to be highly effective for approval. This type of reference is used to highlight your character and responsibility, like how well you can manage tasks and submit payments on time.
However, character references can provide additional context or explain certain things on a credit report that may otherwise seem like a red flag. Here are some tips to make the most of your credit reference:. Viewing your credit reports frequently can help you stay on top of any errors that may be reported and even fraud. If you catch any errors, be sure to report these to the credit bureaus to solve the issues and protect your credit. If you do have a negative mark on your credit history, find out if you can give better context to the situation while gathering your credit reference.
For example, utilize a character reference as a way to illustrate your creditworthiness and explain any concerns that your credit report may show. If your application is rejected, you can ask for reconsideration. To do this, send the lender additional character references and documentation that can help overturn the initial decision to deny your application.
About us. Download link sent. Category Personal Finance. What is Credit Reference? What is the Use of Credit Reference? How Does a Credit Reference Help? Related Terms. Recent Terms. CA Assisted Services. A credit reference usually comes from another creditor, a professional or personal acquaintance of the applicant's, or a financial institution like a bank or credit union.
In providing a credit reference the referring party isn't tied to the approval of credit or a loan, as is a co-signor. The referring party simply provides a letter of reference attesting to a credit applicant's character and his or her ability to pay bills on time a business applicant may also benefit from a credit referral. In some cases, a phone call between a credit referral provider and a lender is enough to formalize and complete the lender's request for a credit referral.
A credit reference kicks off with a request from a lender or creditor for a letter or other form of credit reference. Often, a lender will note the credit reference could be the determining factor in getting credit approval, so the applicant needs to get on the ball and act fast. If you get a request from a lender for a credit reference, check with that lender and ask what specifically they need to see in the letter. The lender might provide a sample blueprint to follow, a letter template they already use, or have it supply a list of specific areas to cover in a credit reference.
No matter what information is required, you'll want to know beforehand, so a call or email chat with your lender is highly recommended. Different lenders may have different criteria for the perfect credit reference provider and again, it always helps to ask what they want.
That said, any credit provider, like a bank, credit card company, utility company, or auto loan financing firm is usually a good bet to be your credit reference provider. Some letters of reference providers, like banks or credit card companies that already hold your personal data, will likely ask your written permission to discuss or release your personal financial data.
A financial institution also likely uses its own form for credit references, and it's worth asking for that form, too. Once you're clear on what the credit reference provider needs, issue an authorization that gives the letter writer a green light to release your personal data, if needed.
If not, they may elect not to act as a credit reference. Most lenders and creditors will likely ask for the information they need for a completed credit reference document. To be sure, however, make sure you include your payment history if your letter of reference provider is a creditor like a credit card company or auto financing firm. Also, make sure to include any relevant account numbers and the time period your business relationship, i.
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