How Credit Reference Letters Work

When you’re a brand-new customer with a supplier, lender, or utility provider they have no idea whether you pay your bills on time. As a result, it’s risky for them to provide anything on credit (without requiring payment upfront).

Credit reference letters might help you get approved for service or secure the best terms on the loan you applied for.

What Is a Credit Reference Letter?

A credit reference letter is a document that describes your payment history with a business you've worked with previously. Recipients use the letter to learn more about your finances and decide if it's appropriate to offer you credit.

Letters (like the samples below) typically provide details about your account, such as the length and the type of services you've used. If you’re behind on payments or make a habit of paying late, the letter should include that information.

Note

References letters come from your previous—or ongoing—service providers and go to your new (prospective) service provider.

A credit reference letter can help you get approved for services based on your history with other service providers. The reference provider vouches for you, making the letter recipient more comfortable with extending credit. These letters might also be called letters of good credit or “good standing.”

Credit Reports vs. Reference Letters

Your personal credit reports are similar to a credit reference letter, but there are significant differences.

Credit reports contain information from lenders, public records, and other sources that credit bureaus combine and centralize. The reports are subject to strict consumer-protection laws and can only be used with your permission.

Credit reference letters are more informal, and they go directly from one business to another. If you've ever borrowed money, you probably have credit reporting data available somewhere. Credit reference letters only exist if you ask for one (and the provider agrees to give you one).

What’s more, these letters can help business relationships, while traditional credit scores are primarily related to your personal credit history.

Why You Need a Credit Reference Letter

Credit scores and reports are commonly used for consumer loans, but they aren’t the best solution for every situation where you might need credit.

Utility Services

When you sign up for services like gas, water, electricity, or phone service, you might need to provide a letter before activation. Those providers often demand that you make a deposit before providing services, but it may be possible to get the deposit requirement waived if you can show that you have a history of paying similar service providers on time.

Business Loans and Suppliers

Traditional credit scores like the FICO credit score help you with consumer loans, but your business may operate with a different credit profile. Companies also have credit scores if they have used credit for financing—Dunn & Bradstreet, Experian and Equifax all provide credit scoring for businesses.

Still, suppliers may be willing to extend credit, such as 30- or 60-day payment terms, based on other vendors' favorable references—the larger and more reputable your references, the better.

Note

If you can use credit to help delay payments, you maintain more cash in your accounts to help you fund your business operations.

Insufficient Credit

You might not qualify for loans that use mainstream credit scores (like a FICO score), but alternative forms of credit can help you get approved. Perhaps you have not yet established a solid credit history, or your credit scores are too low to qualify for specific programs.

In those cases, a credit reference letter may help. For example, some lenders let you borrow for a home purchase with manual underwriting and satisfactory credit references.

How to Get a Reference Letter

Receiving a reference letter isn't a complicated process as long as you take a few steps:

• Verify the requirements: It helps to understand what the new lender needs to know. In some cases, lenders and service providers have a template that your references can fill in.
• Request the letter: Contact your existing provider and ask for a reference letter. Provide any templates or instructions you receive from the letter requester, and ask how long to wait for the completed letter.
• Provide written authorization: To release details about your account, the letter writer typically needs your written permission.

Lenders, service providers, and suppliers are not obligated to provide a credit reference on your behalf—it’s best to ask nicely since they’re doing you a favor.

What Should Be Included

Unless the recipient provides a form, ask the letter writer to use their official letterhead. The essential elements are typically:

• Length of relationship: How long you have had a financial relationship with the letter writer.
• Payment history: Whether you pay on time, if you're behind on payments or if there have been any late payments during the past 12 months.

Additional details are often helpful, and some recipients specifically ask for the following information:

• Type of service: Products and services you've used or purchased, such as a line of credit, residential electricity, or inventory.
• Terms of credit: Payment periods, length of the loan, etc.
• Address of service: Especially for utilities, the address and type of service are relevant.
• Account numbers: Account numbers make it easier to track and verify details.
• Typical payment amounts: New service providers might want to know if you’re accustomed to making large payments.
• The overall total payment: The amount you've paid over the life of your financial relationship.

A reference letter should stick to the requested information. The letter writer shouldn't say that you’re a great person or you’ve been a valuable partner (although that could happen).

Businesses are hesitant to say more than they need to. If they say “there's no risk” in offering you credit, they risk leading somebody astray—with potential consequences.

Note

If you’re writing a credit reference letter for somebody, provide accurate information, and avoid predictions and statements that you can’t back up with facts.

If a service provider doesn’t accommodate your request, there may be other ways to document your payment history.

Other Methods to Validate Credit

If you can’t get the credit references you need, there may be different ways to demonstrate financial stability or get the approval you need:

• Show proof of income: Use pay stubs and tax returns (possibly with a letter from your tax preparer) to document your earnings.
• Document your assets: You might be able to use any valuable assets as collateral.
• Use your credit: Your credit might help you qualify for business loans and other forms of business credit. Some lenders require a personal guarantee on business loans to guarantee repayment.
• Show your statements: Provide statements showing a consistent history of on-time payments.
• Make a deposit: Sometimes, a large deposit is your only option. You may be able to get the deposit returned or credited to your account after a time.
• Use a cosigner: A cosigner can help you get approved for a loan or get utilities because they take on the risk of paying if you can't.

Who Can Provide a Reference?

Your new lender or service provider determines which references are acceptable. You might need to use the same reference type: An electric company might want a letter from your previous electricity provider. However, you may be able to draw from several sources:

• Utilities like gas, water, sewer, electricity, and trash
• Communication providers such as phone, internet, cable, and satellite
• Lenders (auto loans, home loans, and more)
• Suppliers to your business
• Insurance companies that you pay regular premiums to
• Landlords and leasing companies
• Gyms and other subscription services

Sample Credit Reference Letters

Letters don’t need to be lengthy or well-written. All that matters is that you include the requested facts.

Sample 1:

XYZ Company has been a customer since 2008. During that time, the company has made payments in full and on time. We do not have any record of late payments or other outstanding demands.

Sample 2:

Jane Doe has been a customer since 2008, purchasing supplies on 30-day payment terms. Since that time, she has made payments totaling $189,537. She has never made a late payment, nor have we ever suspended her account for non-payment.

Sample 3:

ABC Company has a line of credit for up to $200,000. The current loan balance on that line is $8,542. As of this writing, all payments have been received on time and in full. We do not show any late payments on the account.

Personal or Character References

A credit reference letter is different from a personal or character reference. Some lenders, particularly in subprime auto loan markets, ask for those references. But a personal reference does not describe your payment history—they say you’re responsible and you should get the loan.

Since you get to pick and choose your personal references, you’re likely to use people who you know will speak favorably about you. However, you don’t get to choose the electric company in your area, so that’s typically a more reliable source of information for someone that is considering extending credit to you.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Federal Trade Commission. "Credit and Your Consumer Rights."
2. SoCalGas. "Why Am I Being Asked for a Letter of Credit?"
3. Quicken Loans. "FHA Loan Credit Score Requirements for 2021."
4. Department of Agriculture. "Applicant Reference Letter (A Request for Credit Reference)," Page 1.
5. Small Business Administration. "Small Business Administration § 120.172," Page 237.

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