Reviewed by Sep 30, 2020| Updated on
Credit references can be treated as a credit report, or a written letter from a previous lender, or personal/business acquaintance. Lenders use both credit reference letters and credit reports in their lending decisions for individuals as well as businesses.
A credit reference is generally used to decide on a person's or an individual's creditworthiness. For this reason, credit agencies are most often used, although individual reference letters are sometimes needed. The credit rating company has no responsibility or connection with the loan, except for giving a credit reference note. The letter of reference serves only to give examples of the past history of the individual or business.
The most accurate source of credit reference is credit reports. Credit reports contain detailed line items on the credit history of the borrower, the number of credit accounts opened by the borrower, the number of accounts demanded by the borrower, and any defaults or delinquencies. Credit reports will also include information specifically on other credit products, bankruptcy, or tax debt.
While seeking individual credit ratings, creditors need a letter of credit reference. Credit reference letters are commonly sought in commercial loans. Generally, a credit reference letter has to include information on the reference, such as the name, relationship, and any other details which pertains to the past credit history.
Another example of the need for credit references includes an overseas business who wishes to develop credentials in the U.S. This company will receive a range of credit references from other businesses, banks, suppliers, and consumers it has worked within the home country.
Credit references give potential lenders information about an applicant's creditworthiness. Landlords renting apartments or houses will often ask for credit references from applicants. A credit report is a form of credit guide which is often used. When applying for credit lines, businesses use credit references along with trade references (for example, supplier references).