What Is A Credit Reference And Is It Necessary For A Rental Application?

What is a credit reference on a rental application? If you have ever considered taking out a loan, you might have been asked for a credit reference as part of the vetting process. The idea behind requesting a credit reference on apartment applications is similar to the process landlords follow when screening prospective tenants. Landlords will review a prospective tenant’s financial history, including their credit history, to help determine whether or not the applicant would be a good tenant.

1- Credit Reference on a Rental Application
2- Credit Reference on Apartment Application
3- Types of Credit References
4- Can You Buy a Credit Reference
5- Tips for Credit References

Whether you’re a landlord or a tenant, it’s a good idea to have a basic understanding of credit reference rental applications and the types of credit references to prepare a more robust rental application.

What is a Credit Reference on a Rental Application?

Credit references on rental applications are documents used to support a prospective tenant’s viability as a low risk tenant. Credit references help landlords and lenders determine whether an applicant is likely to make timely payments.

For example, if someone’s credit reference shows that the applicant has paid off all of their outstanding debts, a landlord may feel more comfortable approving that person’s rental application. On the contrary, if the credit reference indicates that the applicant has already defaulted on loans and has outstanding debts, the landlord would likely view the applicant as high risk and decline the rental application.

When do You Need Credit Reference on an Apartment Application?

Generally, a rental application credit reference is required when applying for a loan from a lender. Most common situations when a credit reference may be requested are as follows:

Loan Application: When an individual applies for a loan, lenders ask for a credit reference. It helps them determine whether or not the applicant will pay back the loan amount.

Rental Application: When potential tenants find an apartment they’d like to rent, landlords ask for a rental application credit reference. Landlords will use the person’s credit history to determine whether a tenant will pay rent on time.

Utility Services: A credit reference may also be requested when establishing utility services like gas, electricity, phone service, or cable. Companies request a credit reference before activating the service to ensure the requester has a history of making timely payments.

Types of Credit References

Several documents can be used as credit reference. It all depends on the applicant’s unique circumstances. Here are the most common types of credit references:

1. Credit Report

The most common and important document used for credit references is a credit report. This report provides insight into an applicant’s financial history. Credit reports are the foundation of credit scores. Almost all lenders use credit reports to calculate the risk associated with approving loans.

Other entities may also request credit reports. Landlords ask for credit reports to assess a potential applicant’s credit history before approving their rental application. Insurance companies also may look at a credit report before providing an insurance policy quote.

 It is safe to assume that credit reports are highly effective as credit references because they provide valuable information about an individual’s financial health.

2. Asset Documentation

Besides credit reports, asset documentation is another document that serves as a credit reference. A financial institution that manages an individual’s assets issues these documents. Assets can also indicate the financial worth of a potential applicant. If you own substantial assets, you’ll likely be able to afford to repay loans. If needed, you may ask your financial institution to provide these records to prospective lenders on your behalf.

3. Financier Support Documentation

Financier support documentation is also used as a credit reference. It is similar to asset documentation; the only difference is that financier support documentation does not indicate an individual’s assets.  Instead, it shows the value of a business entity. An applicant who runs his own business can provide documentation that shows he has access to capital through his business. Business owners who need credit references may ask their investors to provide statements that show the amount of capital available to the business.

4. Character References

Another credit reference is a character reference. Any reliable reference from utility companies, previous employers, or past landlords can be used as a credit reference. Any document that highlights an individual’s character can provide information on how responsible the applicant is when it comes to managing important tasks.

A character reference does not give insight into an applicant’s financial history, but it does provide insight into how credible a person is.

Can You Buy a Credit Reference?

When applicants struggle to get solid credit references, they may look to buy them. But you cannot buy a credit reference you have to earn those good marks by paying your debt obligations and doing so on time. This is one of the reasons why credit references are so powerful.

Tips for Credit References

Providing a credit reference on an apartment application alone is not enough. You will also need to illustrate your creditworthiness. Here are some tips that can help you increase your chances of securing a rental space and improving your credit reference success:

• Keep track of your credit reports, and review them frequently. Ensure that there are no mistakes or inaccuracies listed on your credit report.
• If your credit is less than perfect, make efforts to improve it. Paying down debts and paying bills on time are things you can do to turn your credit score around.
• If you are struggling to find an apartment because of your financial history, try using a character reference instead to illustrate your creditworthiness. Although they don’t carry the same weight as credit reports, they can be valuable when trying to get an apartment.

Conclusion:

Credit references can have a significant impact on your rental application. This is because they can provide a snapshot of who you are that a credit score can’t. That’s why some landlords rely on them for more than just a credit report.  The good thing is that you have complete control over how it represents you.

Related Article:

Tips for Choosing a Personal Reference for an Apartment Rental Application
What is Tenant Reference Letter and How to Write it Effectively?
Complete Guide Credit Score while Renting an Apartment in NYC