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Often, if you're in the process of taking out some financial commitment in the long term, such as a tenancy or lease on a property, the landlord may ask for a bank reference.  This is basically a report of the bank's overall picture of your ability to meet the requirements of this new agreement, based on your previous lending, credit etc and transaction history as a whole.

Risk

The landlord is essentially asking the bank to confirm whether you are a good risk in terms of whether you are likely to be able to keep up with any required payments that are involved in the commitment.

It is normally a check that is used when only relatively small amounts of money are involved, and sometimes when you are embarking on a long term financial relationship such as opening an account with a business.

Commitment

Although it does not obviously entail the same long term financial commitments as a mortgage, a tenancy is sometimes treated in a similar way, as the landlord may want to take whatever steps they can to establish whether you're a good risk, and are likely to pay your bills on time each month.

If you've taken out a long lease on a property, this is seen as very similar to such borrowing as a mortgage, and your finances may therefore be subject to considerable scrutiny.

Check

A bank reference is similar to a credit check, but the bank will not release any specific information to the person requesting the reference. Instead, what they may do is consider the financial commitment that you are making, and give the body requesting the reference a concise summary as to whether they feel you are a good risk for that particular commitment.

Within your bank, those responsible for issuing the reference will therefore look back over your finances during the time that you've had an account with them, and look at how well you've handled any debts or credit that you may have had during that time.

Process

If an individual or company requests a bank reference from you, they may have a set procedure for carrying this out.

What else?

If your bank reference indicates that you are not a suitable risk for the commitment, you will need to discuss the situation with the landlord or body who has requested it to see if there is anything else you can do to secure the agreement.

For further information see the article 'obtaining a Bank Reference.'

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