When applying for an auto loan, you may have come across the phrase ‘credit references’ and wondered what they are. In this article, we are going to closely examine what a credit reference is, why and when you would need one, and what the different types of credit references are.
For the facts about credit references, read on now.
Explaining Credit References
A credit reference is basically a document that described your credit history. It shows how well you keep up with regular payments, your financial status and your credit liability, and can come in a number of different formats. It is common practice in most kinds of loans to require a credit reference.
Credit references usually contain some basic information, like the name of the individual and their credit history. They are generally provided by credit bureaus but can be provided by other people too.
Why Would I Need a Credit Reference?
If you are asked to provide credit references, it is usually so the person or institution can check out how you have handled financial obligations in the past. It gives an insight into your credit score, your current debt, and whether or not you pay your monthly obligations on time.
Credit references can also include other information, like asset documentation, character references, and financier support. On the whole, credit references help a lender get to know you and how responsible you are with borrowed money.
When Would I Need a Credit Reference?
There are a number of situations when credit references may be required. These are as follows.
When Applying for a Loan
– Loans, including personal loans and car loans, will require you to submit credit references. Lenders will use this information to assess the risk of lending you the money you have applied for.
– When applying to rent a new home, a landlord will likely ask for credit references to ensure that you will meet your rental payments on time and in full.
When Setting Up Utility Services
– For utilities, including electricity, gas, and phone services, companies will ask for credit references before they activate your accounts.
The Different Types of Credit References
Though most credit references refer to your credit report, there are other documents that may be submitted as part of credit reference requests. We have summarized each of the different documents below.
A Credit Report
A credit report is the most commonly used form of documentation in a credit reference request. These documents are essentially a detailed report of your credit history. They give an overview of how you handle your money and how you meet monthly outgoings.
Asset documentation describes the assets that you own. They show lenders that you manage your money well as you possess a number of assets. These are usually given by financial institutions that handle savings accounts, stocks and bonds, and retirement funds.
If you can provide asset documentation, we highly recommend you do so. It is considered an excellent credit reference if you own lots of assets.
This is similar to asset documentation, but rather than showing the assets of you as an individual, they show the assets of a business entity. These credit references are available for business owners and are another effective credit reference.
Though generally not considered as effective as the other documents in this list, they can attest to your ability to make monthly payments on time. They can be isused by a number of different people, including landlords, past employers, or utility services.
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