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 de ...

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 rat ...

provide credit references for

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

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 repor ...

s provide credit references for

individuals An individual is that which exists as a distinct entity. Individuality (or self-hood) is the state or quality of being an individual; particularly (in the case of humans) of being a person unique from other people and possessing one's own need ...

. Other letters of credit reference might be written by

bank A bank is a financial institution that accepts 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 markets. Becau ...

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overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account.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. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...

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 environme ...

of lending to a given applicant or to determine overall

creditworthiness A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased c ...

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

obligations An obligation is a course of action that someone is required to take, whether legal or moral. Obligations are constraints; they limit freedom. People who are under obligations may choose to freely act under obligations. Obligation exists when the ...

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

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

. 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