Different Credit References and How They’re Used

Different Credit References and How They’re Used

If you're looking to borrow money or rent an apartment, typically, you'll need a credit reference. Credit references demonstrate an applicant's ability to make timely payments.

What Is a Credit Reference?

Credit references are documents that indicate your creditworthiness to potential lenders or landlords. Although the most common type of credit reference is your credit history records, there are other options to prove your creditworthiness to potential lenders.

These references provide insight into your borrowing ability and whether you can repay future loans. In addition, it also includes information about your current debt situation.

There are different types of credit references, each with varying degrees of effectiveness. Here are some credit references to know about:

Credit Report

Credit reports are the most popular of all credit references. Generally, employers, lenders and landlords use credit reports to check your creditworthiness and financial standing. While evaluating your credit history, potential lenders consider your account's age, number of credit inquiries and current debt level. You could face rejection if you have a poor credit score, many credit inquiries or a large debt.

Credit reports can be helpful since they contain your debt and payment history information. Remember, you can get a free copy of your credit report each year from the three major credit reporting bureaus.

Asset Documentation

Asset documentation is another type of credit reference issued by financial institutions. Typically, the documents list your assets, such as savings accounts, stocks, bonds or retirement funds.

Having assets can increase your creditworthiness as it shows you can pay off your debts in the future.

Character Reference

A character reference is a credit reference obtained from a previous lender, landlord or employer. It is a document through which your past lender, landlord or employer can vouch for your character, integrity and ability to pay off future debts.

A character reference letter is beneficial if you are new to the U.S. or have zero credit history. For example, if you've paid off your previous loans on time. In that case, you can have that lender vouch for you, thus improving your creditworthiness.

Although character references are not an actual reflection of your financial condition or a foolproof credit reference, they can be an effective way to showcase your finances. They can improve your chances of getting a loan or renting an apartment.

You might need credit reference in the following situations:

  • Loan Applications: When applying for a personal loan, you need to provide a credit reference to the lender. The credit reference will help the lender evaluate your financial standing and check your ability to repay future loans.
  • Rental Applications: When applying to rent an apartment or house, your potential landlord may ask that you provide a credit reference. A bad credit score might require you to make a hefty security deposit or get a co-signor to secure the lease.
  • Utility Services: Utility providers for services like electricity, water, phone, and gas to check credit references before activating service. They do so to determine your likelihood of making timely payments.

Good credit references can help you get a loan or rent an apartment. In addition, you can get better rates and terms based on your credit score. A good credit score also enables you to get utility services without paying a hefty security deposit.

An excellent credit reference can give you more choices regarding where to get a loan or rent a place and get you insurance at lower rates since most states allow insurance companies to use credit scores to determine their rates.

Information presented in the Financial Advice website is provided for educational purposes only and is not related to Ameris Bank's actual products or services. Ameris Bank makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Ameris Bank recommends you consult a professional for any specific guidance you are seeking.