This article needs additional citations for verification. It all depend on how creative you are in using this valuable resource of credit analysis. Try and ask for trade references where the applicant has had trade dealings for at least one to two years.
Credit rating agencies provide credit references for companies while credit bureaus provide credit references for individuals. Other letters of credit reference might be written by banks , 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 overdrafts or late payments noted.
Individuals and companies can carry out credit checks on businesses in order to assess their credit worthiness . Credit references are used to help lenders quantify the risk of lending to a given applicant or to determine overall creditworthiness. For example, if an applicant's credit history indicates proper, timely payments on all outstanding obligations , a lender may judge it more likely that the applicant will make timely payments on the requested loan.
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. What is a good credit score? Typically a score of and above but, creditors do have their own underwriting guidelines.
From Wikipedia, the free encyclopedia. Finding out the location of the trade reference could provide some insight into the payment practices of the applicant. Try and ask for trade references where the applicant has had trade dealings for at least one to two years. Find out if the references provided are related parties. You might be getting a biased reference. Also, upon insolvency 'related party transactions' are viewed as 'non-arms length' transactions. The remedies for these transactions are worth investigating.
When speaking to one or more of the references provided to you on the credit application try finding out the trade references that were provided to these references by the applicant, at the time that the applicant filled an application for credit with these trade references. Then call these references.
This will perhaps give you a more meaningful insight into the payment habit of the applicant. The amount given as high credit to the applicant displays the exposure and confidence that the supplier had in the applicant.
The figures can also be used to judge and set your own limit with the applicant. If the amount of credit sought by the applicant is significantly higher than the amount indicated by the references then perhaps you might want to proceed with caution and the case might warrant further investigation.
This amount would especially be of significance and concern if during the peak season of the applicant the amount current were relatively low. This implies that you should also know the business cycle of the applicant to aid your analysis. This will trend the payment habit of the applicant and give you a rough aging analysis against the terms as discussed next.
Find out if the applicant has any special terms with the references provided. If so, then does the applicant avail of such discounts or abuses it by taking the discount and still paying late. How has the payment relationship been over the period of their business partnership? Slow 30, Slow 45, Slow 60 …satisfactory, unsatisfactory excellent etc might be some of the typical responses. This would indicate the duration of the relationship of the applicant with the reference that you are checking.
It is important to know if the applicant is a regular customer of this Trade reference that is provided to you. It could be just a one time or a short and sweet relationship that the applicant had with this supplier. Study the 'heading' online or offline under which your applicant is listed in the Yellow Pages and then call some of the others listed under the same heading to find out more about the applicant. This will be of special value if the customer is out of town or even in a different country.
Luckily, checking business credit references is a simple process that can be undertaken in more ways than one. Request Credit Reference Contact Information Create a document to be filled out by the new company that asks for several credit references. Review typical reference check questions so that you know what to expect. You may also want to let your references know what they may be asked, and which of your skills and accomplishments will make the biggest impact on the hiring manager. The above referenced person has applied for credit with our company and has listed you as a credit reference. To assist us in making our credit decision, please provide us .