If you have bad credit or no credit, you may have entered into a contract with a private seller, where they agreed to take payments directly from you, rather than you paying a financial institution for your mortgage. This is a ‘seller-financed loan,’ and is common in rent-to-buy situations where the seller agrees to rent to the potential buyer for a certain amount of time, and then converts the rental to a purchase. While this option is great for those who have bad or no credit, even if you make all of your payments on time, a private mortgage is not reported on your credit report, so your credit score never improves.
Private Mortgages – Credit report
Unfortunately, private citizens can only challenge incorrect information reported on their credit report, they cannot add information to it. Even though your mortgage is through an individual and not a corporation, it is still a business transaction. The person financing your loan can choose to report the mortgage payments to the credit bureau, but he or she would have to pay the credit bureau for the privilege of doing so. Due to the laws surrounding credit reporting, it is not as simple as a private lender just sending information to the credit bureau and it suddenly appearing on your credit report. The creditor, or lender, must provide specific information to the credit bureau, and the debt must be verified as true and legitimate to the satisfaction of the law. If your lender only has a few loans he or she has finance, it is not likely that the lender will be willing to take the effort to report the payments to the credit bureaus, no matter how much it would improve your credit situation.
Improving your credit situation
If you are in this situation, and you are hoping to get your mortgage reported on your credit report, there are a few things you can try:
- See if your lender is willing to use a service that will report to the credit bureaus for them. These type of services will do a number of things for private lenders, including:
- Collect taxes
- Handle insurance
- Issue tax forms (like a 1098)
- Report to credit bureaus
- And more
- If your loan is already serviced by a 3rd party, contact that company to see if they can report to the credit bureau on your mortgage
- Utilize other credit bureaus
Most potential creditors will only pull a credit report from one (or more) of the three major credit bureaus. If you have no credit, or if your bad credit is due to issues in the distant past but you have no recent credit history to raise your score, creditors may consider information from alternative credit bureaus.
If none of these options help your particular situation, you, unfortunately, may not be able to get your private mortgage listed on your credit report. If the goal of adding your private mortgage to your credit report is so that you can obtain other credit, there is good news. While the law makes it difficult for just anyone to report data as a creditor for your protection, it also states that you can provide a potential creditor with proof of good credit history, and this information must be considered when making a decision to extend you credit. What this means is that if you keep good, detailed records, including canceled checks, receipts for payment, end of the year statements, etc that show you have made regular, timely payments, you can provide copies of this information to potential creditors for consideration.
The bottom line
While doing this doesn’t raise your credit score, it can help you to use your good credit history with your private lender to obtain credit lines that will report to the credit bureaus. If you are sure to keep any new accounts you are able to open this way in good standing, your credit score will eventually reflect your good payment habits, and you will no longer need that private mortgage to boost your credit score.