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A credit reference is a document, person or company that can provide information about whether you typically have paid your bills on time.
You’re most likely to be asked for a credit reference when you are trying to rent a home, get utilities connected or borrow money. Also, some states allow potential employers to check credit as part of the hiring process.
Like job references, credit references are meant to give a company or individual confidence that they are making an informed decision about your application.
Credit references for potential tenants
If a potential landlord asks for credit references, it may be a request for information from companies or landlords who have rented to you before. Or the landlord may want your permission to pull a tenant report, which has information on your behavior as a renter, and use that information in making decisions about your application.
A “credit reference” could also refer to a credit report, which is a record of how you have used credit in the past, or a credit score, a number derived from data in your credit report. Credit scores are designed to predict the likelihood that a borrower will pay as agreed.
You have a right to see your tenant reports for free every 12 months. The Consumer Financial Protection Bureau maintains a list of tenant screening companies with contact information for requesting your reports. You have a right to dispute errors.
In addition, you might choose to have your utility or rent payments reported to credit bureaus if you have a history of paying on time and want it listed in your credit reports. Those payments are reported as tradelines, and some credit scores factor in such payments if they are reported.
Credit references for utilities
Utility companies may use credit references, including traditional credit scores, to determine whether you have to pay a security deposit, and if so, the amount.
There are also specialized scoring models, such as Experian’s TEC Connect, that may be used to assess creditworthiness.
Some utility companies also use “letters of credit” to waive a security deposit if the customer has had utilities before. A letter of credit can be requested by a former customer of a utility. It’s typically printed on letterhead stationery and includes account number, payment history, dates and balances. Assuming you have a record of on-time payments, submitting such a letter could result in a lower deposit required by the new utility.
Credit references for borrowers
When you apply for a credit card or loan, the credit references involved typically come from one of the three major credit bureaus, Equifax, Experian and TransUnion. A creditor may look at your credit report, which is just data, without any weighting or evaluation. Or it may look at your credit score. A credit score uses an algorithm to produce a score from the data in your credit reports.
Creditors may use one or both to help them evaluate your application for credit. But those are not the only data points they consider. They also look at debt-to-income ratio, assets, income and other factors.
Credit references for employment
In some states, employers are allowed to check the credit reports of potential employees as part of the hiring process, and those might reasonably be called a credit reference.
No one can look at your credit report without your consent, and a prospective employer gets a modified version of your credit report without account numbers, birth year or marital status.
How to check your own credit references
It’s smart to keep tabs on your credit reports and scores. Before you give someone else permission to check your credit, you’ll want to have an idea of what they’re likely to see — and a reassuring explanation ready if you know they will see something concerning.
Consumer reporting companies — including companies that do employee background checks, tenant screening and traditional credit checks — are required by the Fair Credit Reporting Act to give you a free copy of your report every 12 months if you request it. If you see errors, you can dispute them.
Through the end of 2023, free credit reports are available weekly from each of the three major credit bureaus at AnnualCreditReport.com.
Some credit card issuers and banks offer free credit scores; you can also get them from many personal finance websites, including NerdWallet.
How good credit references can make your life better
Someone with a good credit score is likely to have an easier time qualifying for loans or credit cards, and is likely to be offered better terms, such as a lower interest rate.
They are less likely to have to pay a security deposit to get utilities.
And finally, good credit is likely to give you more choices in terms of where to rent and the jobs you may qualify for. It could even save you money on some insurance, because most states allow credit-based scores to be used in determining rates.