Private Loans Won't Help Credit History
Can I establish a credit history in my name if I borrow from a private source, such as a family member? My husband and I are young and are buying a house, and we're borrowing the money from my uncle. If we set up the loan with a regular payment schedule, can we get the loan onto our credit record to show that we've been making payments on time?
Unfortunately that loan won't show up on your credit record. The credit bureaus only report information when they have a contractual relationship with the lender. These lenders and other companies typically have to do enough business with the credit bureau (both reporting and accessing credit information on borrowers) to make the cost of working with the bureau worthwhile.
And the credit bureaus also check out the reporting companies before working with them because they're subject to a lot of legal requirements for how the data is reported, updated and verified. "Experian does an extensive evaluation of the business to ensure that it is a legitimate company, is well-established in the business, has a physical location, is financially sound, and has gone through a data audit to ensure it has the knowledge and technology to accurately report and verify data according to all legal and policy requirements," says Maxine Sweet of Experian. "An on-going subscription to our services is required so that we can contact them immediately should a consumer dispute their data."
Even though this loan won't count, there are plenty of other steps you can take to improve your credit record. "It sounds like this consumer might benefit from opening a credit card with a low interest rate and using it responsibly over a six- to 12-month period of time,” recommends Steven Katz of credit bureau TransUnion. Keep your charges below 25% of the card's limit and pay the balance in full -- and on time -- so you won't owe any interest. For tips on building and improving your credit score, see Demystifying Your Credit Score, Seven Steps to Stellar Credit and the Money Smart Kids column about Sharing Your Credit History with a Child.
Got a question? Ask Kim at firstname.lastname@example.org.