Editor: David Reiss
Brooklyn Law School

September 22, 2017

What Is a Credit Reference?

By David Reiss

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WalletHub quoted me in What Is A Credit Reference? Definition, Examples & More. It opens,

A “credit reference” is a document that attests to the creditworthiness of a prospective borrower or rental applicant. The most common type of credit reference is a credit report, as it chronicles an individual’s or business’s credit history. And the most notable credit reports are those from TransUnion, Equifax and Experian. You can check your TransUnion credit report for free on WalletHub.

A credit report isn’t the only type of credit reference, though. The term can also refer to the individual accounts on your credit report. For example, someone with no prior credit history may be deemed to have “insufficient credit references.” And that just means there are too few data points for the lender to assess his or her creditworthiness.

A letter from a credible source that speaks to an applicant’s financial trustworthiness would also qualify. This type of credit reference isn’t likely to help individual borrowers very much, except maybe for situations involving small neighborhood banks and credit unions, which are more likely than national lenders to value personal relationships. But it plays a big role in corporate lending. This includes business-to-business credit arrangements, where a borrower’s history is less readily available and the voucher of a trusted source – such as a vendor with whom the business has previously worked – is thus more meaningful. In this context, a credit reference may also be called a “trade reference.”

Below, we’ll explore credit references in greater detail, explaining the most common types of credit references and when they’re most effective.

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Ask The Experts: Assessing The Effectiveness Of Credit References

Credit references are characterized by variety. Myriad types exist and the impact of many is difficult to quantify. We therefore sought additional perspectives from a panel of lending experts from both the consumer and corporate sides of the aisle.

David Reiss

Mortgage lenders want to know that borrowers have the capacity to repay your loan and one way that they can gain comfort is to see what types of assets you have.  Lenders will often ask to see your statements from financial institutions as part of their underwriting process.  These statements can be considered as a type of credit reference.  The more liquid the asset (a savings account, for instance) the better, as far as the lender is concerned.  This is because it means that you can access the funds in the account readily if you needed to make a mortgage payment.

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