What is a Credit Reference on a Rental Application?
When putting in a rental application, you want to represent your worthiness as a tenant as completely as possible. Promoting yourself can only get you so far in the eyes of a potential landlord, but the word of someone else often carries more weight.
For this reason, you may want to beef up the materials for your tenant screening. Instead of relying solely on your credit report, documents from a financial institution and even pay stubs, toss in a few references.
Different details, from different types of references, can supply information that puts your rental application over the edge with prospective landlords. They could increase your approval odds that the rental property you want becomes yours.
What is a credit reference?
A credit reference is a document that attests to the creditworthiness of an applicant. The letters can come from a variety of sources, but their goal is the same — to provide detailed information proving you make on-time payments when bills come due.
When applying for a rental, the landlord or property management company may already have reference requirements in place, but even if they don’t, it’s OK to offer up these supplementary materials. Just make sure to choose credit references who will speak positively about your credit history.
If you don’t have a strong credit history or you have outstanding debt, credit references can double as character references or employment references. Both can help show you’re a responsible tenant.
When do you need credit references?
Since credit references can expand on your payment history, and demonstrate your likelihood of making timely payments, you may want to have them in multiple situations. Any time you want to borrow money or are applying for credit cards is a good time to consider one. Of course, they can also be a key piece in the rental application process.
These references not only shed light on an applicant’s credit history but help landlords get an idea of your creditworthiness and whether you’re likely to pay rent on time.
Can they replace credit reports?
Although credit scores are the most concise way for landlords to get an idea of your payment history and whether you’re missing payments on things like previous leases, there are no details here, just facts.
Credit reports come from the three main credit bureaus, TransUnion, Equifax and Experian. There’s no character reference attached to your credit score, and credit reports frequently leave out any extenuating circumstances that led to you making a late payment.
Credit references fill in the blanks. They provide the substance that can help a landlord understand what was going on. For example, if you have a ding on your credit report for not paying a month’s rent in a timely manner, but your check got lost in the mail, a letter from your previous landlord could clear that all up.
Most landlords will still want to see a credit report, so think of your credit references as a supplement rather than a replacement.
How to choose credit references
When choosing credit references, it’s important to ask people who will speak positively about your credit history. Good choices might include:
A previous landlord
Utility companies
An employer
Financial institutions or any previous lenders
Bad credit references might include:
A family member or friend
A collection agency
An ex-spouse
A previous landlord could also be a bad credit reference if you had issues with them of any kind. This includes issues with payments, but also just getting along in general.
Friends and family members will, of course, say good things about you, but because of their personal connection to you, won’t always be considered a reliable choice. Although friends and family are great to ask, they won’t carry as much weight as an employer, co-worker or past landlord, for example.
Character references
If you don’t have a credit history and need someone to provide a character reference, you may instinctively go to your friends and family. If possible, instead, reach out to a co-worker, neighbor or even someone you volunteer with. They’ll offer a more unbiased opinion of your character in your landlord’s opinion.
What’s included in a credit reference letter?
When asking people to write credit references for you, it’s OK to let them prepare a letter that you’ll then add relevant information. Make sure any reference letter has:
Your name
Current address
And email and phone number
Make sure the letter is going to your prospective landlord, so ask whoever is writing it to include your landlord’s name, address and email, as well. You may even want to send them sample letters to make it easier to write one for you.
If you’re simply responding to a request for credit references by providing a landlord with a list of contacts, make sure each entry has their:
Name
Contact information
Relation to you
For example, if you were listing your current landlord, the entry would look like this:
Mr. Joe Landlord, joeland@landlord.com, Current Landlord
Other forms of credit reference
There are several different types of credit references that support credit reports and your actual credit score. They don’t necessarily have to be a note written by a specific person. Supporting documents can also enhance the story credit reports tell, adding depth to your personal financial situation.
Additional supporting documents include:
Checking or savings account history
Public records
Retirement funds statement
Pay stubs and/or W-2 forms
Each of these different forms and documents can up the positive impact your application has on a potential landlord. They add greater detail to your credit history that goes beyond a single number. They all come together to help establish your creditworthiness.
Financier support documentation
A credit reference may also come in the form of financial support documentation. This type typically comes from a family member or friend who agrees to co-sign your lease agreement or act as a guarantor for your rental payments.
This type of reference is particularly helpful if you don’t have strong credit references, and are trying to counter negative items in your credit history.
Employment references
Employment references are another type of credit reference used to show that you’re a responsible tenant. A current or previous employer can provide an employment reference, but make their letters include your job title, dates of employment and salary.
Asset documentation
Asset documentation is a type of credit reference that shows your financial stability, which translates to your ability to pay rent. It includes bank statements, investment account statements and retirement account statements.
Rental history
Your rental history is another type of credit reference that landlords may check. Your rental history includes information about your previous rentals, such as whether you made your payments on time, how long you stayed in each rental and whether you left behind any damages.
Utility services references
Utility references help demonstrate your ability to pay bills, of any kind, on time. They include information about your electricity, gas, water and trash bill payments. Rent is just another bill when you get right down to it, so your pattern of payment with these smaller bills can help influence your creditworthiness for bigger ones.
When in doubt, include a credit reference letter
A credit reference adds depth to that potentially deceiving credit score. Even if your landlord doesn’t request credit references, consider adding in a few — from trusted sources — to really show who you are as a renter. Ensure they illustrate how responsible you are and how likely you are to pay rent on time.
Coming from the right sources, credit references will simply help boost you up in the consideration pile for that next place to live.
The post What is a Credit Reference on a Rental Application? appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.
