Progressing towards renting a place, or business credit? Ventures inclusive of credit-related services will require your credit reference which will be outlined in this blog.
You may seek any personal or business endeavors regarding a credit where your credit reference can be assessed. If you are an amateur in the financial market, you may be trying to come up with the term credit reference. When it comes to the lenders like banks or dealerships, you may be asked to bring the additional reports on the table along with a credit history report to establish your credibility.
So, basically what actually is a credit reference? This blog from Carsfast will explain its standing along with supplemented tips that can be useful for you.
What is a Credit reference?
Typically, your first intended interrogation should be what are credit references. Credit reference is a reference letter or a credit statement from preceding lenders, or personal or business creditors, that establishes your creditworthiness as a borrower. Whenever lenders engage with a borrower for the sake of lending money, it can become a risky endeavor as they may never get the money back.
In order to curb that risk, lenders employ some methods to ascertain the prospect of a particular borrower in terms of repaying the loan. The main clause for any lender is to verify your financial obligation from various sources to verify any risk pertaining to the money they are going to lend you. You may have an impending loan with a bank, or bills you often pay which can be summed up as credit reference examples.
A credit reference is one of the tactics used to figure out the likelihood of receiving the money back from the borrower as it displays the credit history. For any loan approval, your credit reference for any lender is a source of evaluating the associated risks. From the vaults of a credit reference, the backbone of your credit history and potentiality as a trustworthy borrower is established, which can be required whenever you borrow money, like an auto loan, or when you rent from a landlord.
You always have to be consistent with your payments to acknowledge your credibility which can otherwise dictate your financial irregularity. “Procrastination is like a credit card: it’s a lot of fun until you get the bill”.
How credit reference works
Credit reference comes into the picture when you try to apply for an auto loan or any utility service, where the need for the process begins. The requested credit reference for the lenders helps them decide whether you are worthy as a borrower or not, according to which your loan is approved. There are some series of documentation which you are required to borrow:
- Borrower’s name
- Account number
- Duration of a relationship as a customer
- Any missed payments
- Products or services exchanged
Besides, lenders may also require additional information like the payment amount or the total amount paid to the financial institution, etc, to determine the credibility of the applicant.
Types of credit reference
A credit reference or a letter of good standing is like a blanket term that includes multiple versions of it, differentiated as:
- Credit report: A credit report is the most common form of credit reference, owing to its accuracy and wide usage. It presents the total debt of a loan applicant along with displaying his subsequent debt management by showing his credit accounts and payment history.
A thorough credit history report formulated using a credit report from credit bureaus deciphers the credit history of an applicant which becomes a vital factor for approving a loan. If you want to access your credit history online by evaluating your credit report, you can continue with Carsfast for a reliable and swift output.
- Asset documentation: For the evaluation of the financial health of an applicant, assets like cash can be a significant element. The proportion of the highest assets creates more chances for an applicant to get approved by the lender. Applicants can get a record of investments from their brokers which provide an enlarged summary of the assets owned.
- Personal character reference: Personal references coming from your friends or family can also be a part of credit reference, which can act as a statement to verify your character and creditworthiness.
How to get a credit reference
The steps to obtain a credit reference may vary for different instances, where the common testimonial to for applicant’s credit history check can include:
- Know about the information needed: Your lender will specify the information needed by providing a template, where you need to verify the same.
- Getting credit references from the provider: To obtain a letter of good standing, you need to contact your previous service providers or creditors.
- Allowing the provider to transfer your information: Your previous lender discloses your personal information, where they request written authorization to proceed.
Use of credit references
Whenever you apply for a loan or switch to alternate lenders or service providers, credit references can be required. You may have to use a credit reference for:
- Utility services: You may be trying to switch your utility service providers of gas, electricity, water, etc, where you may be asked to bring a credit testimonial to activate your account by ensuring your trustworthiness as a customer.
- Rental agreements: Landlords may require a credit history report of a tenant where the scenario for the usage of credit reference drives in.
- Loan applications: When any individual is looking to borrow some money from a financial institution or dealership, like for an auto loan, he may be asked to submit a credit report to check his credit score range which determines the capability of an applicant’s repay.
Tips to secure a credit reference letter
In order to get a positive outcome when you apply for a credit reference, here are some tips you need to ensure:
- What is the information required: As every lender may require specific details or information, you should know the criteria for the same and make sure it is included in your credit reference.
- Submit on time: When it comes to an economic setup, time is an important framework whereas an applicant needs to make sure that you submit the credit reference by the allotted time.
- Credit history check: It is recommended to keep frequently checking your credit reports to ensure it is free from any errors. In case you catch such errors, they should be reported to credit bureaus immediately which can resolve the matter. In case of a bad credit score, you can try to boost it if you know it in the first place by making on-time payments and paying down the outstanding debt.
- Request for reconsideration: In case your loan or service is rejected, you can request for reconsideration, where you can send reliable character references to the lenders that denied your application. You can explain the shortcomings that led to the rejection in the first place.
When it comes to a credit reference letter, it should meet all the requirements of the lender and contain the necessary information that depicts your credit history. Coming to the results or services you want, a credit reference can proceed or hinder the approval process, where it is important to build a positive credit history with your lenders or service providers.
What information is needed for a credit reference?
The lender will outline the required information for the credit reference. While the information required for a credit reference may vary with different lenders, the elements of credit reference include:
- Relationship duration with the previous creditor or service provider
- Your Payment history
- Account numbers
- Payment amounts
- Outstanding debts along with current standing with the provider
What will credit references tell a creditor about you?
Credit references include the applicant’s credit accounts and payment history determining his testimony as a borrower, which can allow a lender to either approve or reject his application. Credit references depict the individual’s credit score which shows the potentiality from his end to borrow the money and pay it back.
How does credit referencing work?
In terms of working, credit reference determines your trustworthiness as a potential borrower. For any credit-related service, your credit reference, say a credit report, will determine your current debt along with your credit history of repayments. Depending on the creditor, your application may be approved or declined after evaluating your credit reference.
How long do credit reference checks take?
Most of the credit checks are returned within minutes or hours like in the case of tenant check when it comes to online resources. In Canada, 2 prominent and trusted credit bureaus i.e. Equifax and TransUnion can be used to request your credit report where it may take 5-10 days to receive it from Equifax.