Credit references are slowly creeping into our lives more and more. What began as a simple query when applying for a loan has gradually spread to apartment rentals and even job applications.
So what is a credit reference and should you provide one when asked? We asked our car loan expert for advice.
What is a Credit Reference?
A credit reference is similar to a personal or professional reference requested during a job application. It’s a statement from an organization with whom you have had financial dealings stating your payment history with them.
It is different from checking your credit report in that it’s a personal reference provided in confidence by someone you have had financial dealings with.
How Do Credit References Work?
Let’s say you’re applying for a car loan or even a business loan. The lender checks your credit history and sees good news, but still isn’t sure you’re a safe risk.
The lender asks for a credit reference from you. They should provide the exact information they need, such as size of the accounts, number of payments made on time, number of missed payments and so on.
You, in turn, approach an organization and request they provide a credit reference including the information requested by the potential lender. You provide permission for that organization to release the information on your behalf.
That organization will either send the credit reference directly to the lender or to you to pass on to the lender.
What’s Included in a Typical Credit Reference?
As mentioned above, the potential lender will likely have specific questions they want answered. You should ensure any credit reference you provide will include those.
A typical credit reference should include:
- Details of accounts held with the organization and the nature of the relationship
- The length of that relationship
- An overview of your payment history to include any missed payments and a summary of your payment history
- Any identifiable markers to link you to those accounts
- The amount of credit you have used, paid or requested
- Any current outstanding balances held with that organization
- Specific answers to the questions posed by the potential lender
A credit reference doesn’t have to be an extensive catalogue of all your financial dealings. It can be a simple letter outlining your relationship.
For example:
(Applicant name) has been a client of (organization) since (date). They use our exchange services on a regular basis and always make timely payments. They have ordered to date a total of (amount applicable) in currencies from us and their account has never been suspended for any reason.
Depending on what questions the potential lender asks, that simple statement with the essential information can be sufficient for their needs.
Just remember, organizations don’t have to provide credit references. Most will though. They know that maintaining good professional relations leads to future business so it is unlikely that you would ever be refused.
Hopefully this article helped you understand what a credit reference is! For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!