What’s In A Credit Reference Letter?
When you’re applying for an apartment, you may be required to furnish a credit reference letter. A credit reference for a rental application acts much like a reference list on a job. Landlords want to see that you are a good renter by having others vouch for you. Typically, this will be a reference from a business that has granted you credit, meaning that a credit reference letter will typically include information about your payment history. Credit references also include the following information:
- How long the creditor has known you
- Your bill-paying record
- Any issues you’ve had
- Any amount owed
- Any optional notes about property damage that may be worth discussing
A credit report can also be used as a credit reference. Still, if you’re being asked for a credit reference, it’s usually expected to be a separate one from your credit report.
Rental Application Credit Reference Types
- Credit Report
- Asset Documentation
- Financier Support
- Character References
1. Credit Report
Credit reports are the most essential and trusted credit reference. Most lenders or landlords will require a certain minimum FICO score for you to be approved for a loan or an apartment. Three major credit bureaus generate credit reports: Equifax, Experian, and TransUnion.
Your credit report will include:
- Your payment history.
- Current debt.
- The number of credit inquiries.
- Public records, such as bankruptcies and foreclosures.
The credit bureaus will then take all this information and calculate a FICO score based on a scale of 350 to 850. Typically, anything above a 680 is good, although the exact requirements will vary depending on the circumstance. As long as your credit score is good, the other credit reference forms are just icing on the cake. But if it’s not, you may need alternative references to plead your case.
However, if you have a bad credit score, it's going to be tricky to convince your landlord. You can try to mask it using credit references, however, your landlord might not be convinced enough. But don’t worry, if your landlord rejects you, there are still ways of getting an apartment with a low credit score.
2. Asset Documentation
Lenders and landlords may also ask to see any asset documentation. These are any proven record of the current assets, including bank account statements, investment accounts, retirement accounts, records of homeownership or investment properties, proof of ownership of any businesses, and any other places you park your money. Showing lenders that you have a variety of assets beyond your regular paycheck can go a long way to proving your creditworthiness. It shows that you’re financially responsible and proves you have other sources of cash and liquid assets to fall back on if something happens to your regular source of income.
3. Financier Support
Another good reference is a record of support from financiers. Fancier support is typically for business owners who need to prove that they have the backing to afford a purchase. So, they would get a letter from investors or other financial partners confirming that they are willing to provide them with capital. Financier support comes in handy if the company is trying to buy or lease office space or a vehicle and needs proof that they will have the money to pay for it, especially if the business is yet to be profitable. To be effective, it must come directly from a lender or financial institution. But this can be a good way for startups to acquire assets without paying cash.
4. Character References
A character reference is a letter from someone you’ve worked with or borrowed money from in the past, vouching for your character and financial responsibility. The reference will typically come from a former employer, business partner, or landlord who’s willing to attest to your creditability. Character references aren’t always adequate to prove creditworthiness but can provide some context to a potential blemish in your credit report or financial record. For instance, if you went through a divorce or other major life event that put a strain on your finances but otherwise have a clean record, a character reference may convince the lender to overlook a particular shortcoming.
Examples Of Credit References On A Rental Application
You might not know what to expect from a credit reference, but it’s usually just a short, typed letter or a correspondence between the reference and the potential landlord. Here’s what a typical credit reference for an apartment might say:
- “Missy Jones always paid her credit card bills on time. We’ve never had a problem with getting her to pay anything. The longest she has ever been late on a bill was ten days, which was well within our two-week grace period.”
- “When Caleb Johnson was my tenant, he always paid before the grace period ran out. He also made sure to keep the place perfectly clean, which meant that he got his entire rent deposit returned to him.”
- “Our company has been dealing with Mark Keely for the better part of two years. He had a car loan from us and paid it within the grace period every month. He still owes approximately $20,000 to be paid over a period of 38 months.”
- “Mr. White had a serious delinquency when he was my tenant a year ago. When we tried to talk to him, he refused to listen to us. Eventually, our company had to take him to court and start the process of eviction. We do not recommend him as a tenant or as a borrower.”
- “Sarah Jameson was a tenant of ours from 1996 to 2016. She paid on time but was terrible to the property. We incurred $8,500 in damages as a result of his neglect. We will be taking him to court. Sara is in the process of getting evicted from the property.”
- “Quincy Wiggles has been a renter for the past year. We have never had an issue with his payment schedule. He’s very communicative.”
- “We have accepted Roland Lafayette into our company, with a starting salary of $60,000. With this salary, we have no reason to believe that he would be unable to afford rent at $1,000 a month.”
How Many Credit References Do You Need?
Though many landlords won’t need any credit references whatsoever, some will require them. Those that do will only ask for one or two references—and that’s usually reserved for fairly exclusive communities, too.
Since credit references are not a rigid thing, the term often comes with a little leeway for interpretation. If you have a potential landlord (or committee) that requires a credit reference, you may be able to ask them for any specific guidelines they want in the reference.
What To Put For Credit References In A Rental Application
If you have been asked to furnish credit references, you’re going to need to approach (or just list) people who you have a business relationship with. The following individuals and companies are considered to be good credit references:
- Former landlords are the best bet since they are literally the ones who can explain the full gamut of what you’re like as a renter. Many major apartment complexes will insist on at least one reference from a former landlord—or at least, your university’s dorms.
- Credit card companies and lenders are your next best bet, and they can be excellent for people who haven’t quite rented an apartment just yet,
- If you cannot get a creditor to give you a reference and can’t get your landlord to budge, the next best thing you can do is call an employer. Employers may be able to prove income by furnishing an offer letter.
Credit Reference Bottom Line
Credit references make a huge impact on your rental application, primarily because they add a human element to your application that regular credit scores do not offer. Many landlords trust them more than they would a credit report, but your mileage may vary from landlord to landlord.
The important thing to realize is that you have a lot of control over your credit references—more so than most people tend to believe! After all, you’re the one who gets to choose who gets to be the ones who give the references. You also generally control the outcome, since they are being asked to report on your behavior.
As long as you pay your bills on time and don’t leave your home a complete wreck, there’s not going to be much reason to worry about your credit references.
Credit Reference Rental Application FAQs
1. Do All Credit References Discuss Your Rental History?
If you get a credit reference from a past landlord, they may mention your time spent there. However, this is unusual unless you have caused prolonged, extensive damage that resulted in a court case. If you’re worried about that one noise complaint your neighbor filed, it’s unlikely that your landlord will mention it in their credit reference letter.
For the most part, it’s all about just getting a better idea of how you are when it comes to paying the bills on time.
2. Can You Buy A Credit Reference?
With some parts of the rental application, you can go to the right company and basically buy a quick route to “patch up” parts of your application that look less than stellar. You can do this through credit repair companies, guarantor companies, as well as through rent insurance companies.
Unfortunately, a credit reference cannot be bought. It can only be earned through the hard work of diligently paying off bills and managing your money well. That’s what makes good credit references so powerful.
3. Why Isn’t A Credit Check Enough?
Credit checks are important for landlords since they can help determine whether you pay your bills on time. However, when you’re renting an apartment, the fact that you pay your bills on time isn’t the only thing that landlords care about.
In many cases, landlords are renting out a part of their home. They don’t want to have people move in that don’t clean their places, use hard drugs, or have critters follow suit. Credit checks won’t show these facets of your living habits, which is where credit references come into play.
Moreover, credit checks don’t always reveal all the things that happen with your bills. A credit reference will make it easier for landlords to get a good idea of what you’re like as a tenant.