Can a Private Mortgage Go on a Credit Score?

You sometimes can get a mortgage at a discounted rate if you obtain a private mortgage, but this arrangement rarely improves your credit score. A private mortgage involves a loan agreement between two parties, such as if a parent were to offer a loan contract to a child. This is unlike a traditional mortgage, which originates from a bank or some other financial institution. However, subsequent potential lenders may not accept the payment history on a private mortgage as a legitimate predictor of the borrower's behavior.

Identification

The major credit bureaus -- TransUnion, Equifax and Experian -- cannot report most private mortgages on your credit history. Your credit score is calculated based on data in your credit history, so a private mortgage would have to appear on your credit report to improve your credit rating. The bureaus only report data they can verify, and private mortgages typically are not reported by the bureaus because the parties in a private mortgage could abuse the system with phony accounts. If you had a private mortgage with a verified payment history, such as canceled checks and a notarized contract, it is possible one of the bureaus may report it, but it's unlikely. If you obtain a loan from a real estate broker, he might have an account with the major bureaus if he has enough accounts, in which case he could report loan payment data and, thus, affect your credit score.

Alternative Credit Bureaus

Alternative credit bureaus would likely report the payment history on your private mortgage if you furnished evidence of monthly payments. Unlike the traditional bureaus, alternative bureaus accept any account it can verify if you agree to pay a monthly fee for the administrative costs of verifying an account to the agency. Creditors may at least consider an alternative payment history if you do not have a traditional credit record. However, the information on the major bureaus' credit reports carry much more weight.

Third-Party

The lender of the private mortgage might be able to report it to the bureaus using a credit reporting service. This type of company helps businesses establish an account with the bureaus and sometimes list debts on behalf of their clients. In general, a credit reporting service only reports delinquent debts, so it probably would not boost your score as a borrower.

Tip

You and the lender should consult a real estate broker that specializes in private mortgages, which are usually called hard-money loans or trust deeds. For instance, most hard-money lenders charge a high interest rate, and some states, such as Pennsylvania and Ohio, have laws that make the foreclosure process lengthy and expensive, so lenders are hesitant to approve a private mortgage unless you already have good credit. If you make an agreement between you and your friend, consult an attorney, because the lender must charge at least the government lender rate for the contract to be valid.