Do Hard Money Loans Show Up on Your Credit Report?

That’s an important question. What happens when life goes sideways in the middle of a project? What happens when something was missed on inspection that will end up costing you more money than your investment property is worth and you can’t repay your loan? What if the housing market tanks without warning? Will it trash your credit? Will your lender report you to the credit bureau?

Well, you can go ahead and breathe a sigh of relief. In the vast majority of cases, the answer is no. Your hard money lender will most likely not report your delinquent loan. In the end, they actually have very little reason to do so.

Why Wouldn’t a Hard Money Lender Report a Bad Loan?

Hard money lenders aren’t lending against your credit — the property they finance is also the asset being borrowed against. Therefore, should you default on your loan, the collateral property reverts to them, and the value of the property is used to cover the outstanding debt.

But more importantly, hard money lenders want to help you out, as they have a vested interest in your success. Many will even help you refinance them out of the deal.

But Why Do Traditional Lenders Report Delinquent Loans?

While the two types of loans may seem similar in principle, a conventional mortgage is not about the asset (i.e., the property). Instead, its approval is mainly based on your credit history and your income. This is how banks determine the risk you pose in regards to repaying the loan. There’s a lot of banking regulations and red tape involved.

Hard money loans, on the other hand, don’t come with those sorts of rules and regulations, as their loans don’t have to be approved by government-regulated financial institutions — they’re coming from savvy private investors. Because they don’t have to follow strict government standards, it’s in their best interest to leave the credit bureaus out of it.

When Might a Hard Money Lender Report a Delinquent Loan?

In a word: fraud. While a hard money lender understands that circumstances beyond a borrower’s control can affect their ability to repay their loan, they will not idly allow themselves to be defrauded. In situations where some type of fraud is in play, you can be sure that the credit bureau will be alerted.

As you can imagine, this sort of situation is a rarity, and one that should pose no worry to nearly every borrower seeking a hard money loan.

One Less Thing On Your Credit Score

That should clear things up. Hard money lenders see themselves as your partner. Your continued success is their continued success. As long as you keep everything on the up and up, and your lender sees you working hard to repay your loan, they’ll do what they can to help you. And if it comes to defaulting on your hard money loan, your credit score will most likely be unaffected.