A credit reference is information, the name of an individual, or the name of an organization that can provide details about an individual's past track record with

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...

Credit rating agencies A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may r ...

provide credit references for

companies A company, abbreviated as co., is a legal entity representing an association of legal people, whether natural, juridical or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specifi ...

while

credit bureau A credit bureau is a data collection agency that gathers account information from various creditors and provides that information to a consumer reporting agency in the United States, a credit reference agency in the United Kingdom, a credit report ...

s provide credit references for individuals. Other letters of credit reference might be written by

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s, which would provide basic information about how long the applicant has held an account, what type of account it was, and whether there were any

overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. In these situations the account is said to be "overdrawn". In the economic system, if there i ...

s or late payments noted. Individuals and companies can carry out credit checks on businesses in order to assess their credit worthiness

How credit references are used

Credit references are used to help lenders quantify the

risk In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

of lending to a given applicant or to determine overall

creditworthiness Credit risk is the chance that a borrower does not repay a loan or fulfill a loan obligation. For lenders the risk includes late or lost interest and principal sum, principal payment, leading to disrupted Cash flow, cash flows and increased Colle ...

. For example, if an applicant's credit history indicates proper, timely payments on all outstanding

obligations An obligation is a course of action which someone is required to take, be it a legal obligation or a moral obligation. Obligations are constraints; they limit freedom. People who are under obligations may choose to freely act under obligations. O ...

, a lender may judge it more likely that the applicant will make timely payments on the requested

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

. Your credit references show as credit tradelines on your credit reports. Whats known as credit tradelines is also known as credit references. Whether the credit reference is a good one depends on if the payments have been made on time or not. The credit limit and payment history in the credit references give other potential creditors an idea on whether an individual will make payments on time or default. Credit references also determine if an individual's credit score. A good credit score is typically a score of 700 and above but, creditors do have their own underwriting guidelines.

How credit references are used

References

See also