Credit History and Private Loans

Will private loans affect your credit history in any way?

The correct answer to the above question, one of the most commonly asked regarding credit history and loans today, frequently eludes people. Unfortunately for us all, private loans, either from a family member or a friend, won’t show up in a credit report for any of the three major credit bureaus.

If you’re fortunate enough to have a relative who is nice enough to offer you some money, consider yourself lucky. However, even with a legitimate payment schedule set up, the loan will never show up in your credit history.

The reason is simple. Credit bureaus only report loan information when they have a contractual relationship with the lender. And for the most part, lenders will only partner with a credit bureau if they’re doing enough business to make the cost of the partnership worthwhile. Unless your beloved Aunt Eileen and Uncle Jimmy conduct business with Experian on a regular basis, there is simply nothing you can do.

But in all honesty, don’t let this post discourage you from accepting money from a private lender. Obviously, if a friend is willing to lend you money during a time of need, take them up on the offer. On a side note though, be careful when borrowing money from friends. Friendship and money doesn’t often mix well. I’ve seen more than my fair share of relationships end because of financial deals gone awry; try to avoid this from happening to you at all costs.

And the good news is, even though private loans will never show up in your credit history, there are still a number of other ways to improve credit.

First and foremost, by simply making credit payments in full on the day that you get your bill, you can dramatically improve your credit score. And if you have the means to do so, try to pay more than the minimum amount required on your credit card bill or loans each month. In doing so, you will save a great deal on interest in the future. A popular myth about credit is that you need to carry a balance from month-to-month in order to build a history. In reality, credit bureaus can’t differentiate between people who carry a balance and those who don’t. So to prevent high interest charges, make monthly payments in full.

For more ways to improve your credit, click here.