How to understand bank references

Posted in 'Banking' by Barry Stamp

22 December 2011

There’s a secret code in bank references - your bank manager’s opinion of your credit standing – that we are more than happy to reveal.

Bank references pre-date credit reports- which are a relatively new thing – and were once the only way of checking out the “creditworthiness” of a consumer. Even today, bank references remain an important way of checking out credit standing for the many companies who do not have access to detailed credit reports. Only the largest 250+ lenders see your account history reported on credit reports. This is because to see this level of detail, lenders have to report the payment history of their own customers every month, and that needs the consent of every customer, is not cheap, and is not easy to do.

To obtain a bank reference on another person or company, you need to ask your bank to make a ‘status enquiry’ on their bankers. This means that you need to know who their bankers are. You can find that from a cheque (if you have a cheque). If not, simply ask the other person or company for the details.

Your bank will write to their bank manager and ask for their opinion of their customer, and whether they are good for a specific amount (e.g. £5,000) and for a purpose (e.g. trade credit).

A typical bank reply might read ‘Respectable and trustworthy, considered good for your figures and purpose’.

That’s where you need to know the secret code. Small changes to that simple sentence can be critical.

In short, ‘respectable’ means all the usual money laundering checks and references were made when the account was opened. Less strong alternatives you might see include ‘Respectably introduced’, and the weakest is if you don’t see the word ‘Respectable’ at all.

‘Trustworthy’ means that the customer usually only issues cheques when there is a reasonable chance that there is enough money in the account to pay them, and also that if a customer has said he or she will pay in regular instalments, the track record has been good. Omission of the word 'trustworthy' means the opposite - i.e. that the customer is untrustworthy.

‘Considered good’ means that the customer is pretty much undoubted. ‘Should prove good’ doesn’t mean what it says. It means that the customer is under known financial pressure but hasn’t made a mess of his or her finances before, so might be OK, but the banker has more than a seed of doubt.

If you see ‘We do not think he would enter a commitment he could not see his way clear to fulfil’, be careful, as this means exactly the opposite. There’s a risk of default. The bank just isn’t saying it in so many words.

Also look out also for ‘The bank has a debenture’ which might appear as a little afterthought to the main message. If the bank has a debenture, it has to tell you. If it has one, it can pull the rug at any time and then you’ll have little chance of recovering your money if things go wrong.

Your credit report is much more fact-based and is a record of how you have kept up payments on your credit commitments every month for the last six years. If you check your Multi Agency Credit Report at checkmyfile, you can see information at all three credit reference agencies, at different levels of detail. This includes the balance, limit and status of every credit account recorded at one of the agencies, every single month, going back six years. The incredible detail that our reports give may surprise you. It’s free to trial a subscription to our Multi Agency Credit Reports for 30 days, and if you don’t cancel you can keep tabs on the information being recorded against your name for only £9.99 per month. That’s a small price to pay for peace of mind, and the reports include free credit scores at no extra charge.