How To Check Your Buyer's Credit
If you are an individual considering seller financing the sale of your real estate or business, you should obtain a credit report on your prospective buyer.
Without factual knowledge of your buyer's credit standing, you cannot make an informed judgment about accepting or rejecting their offer. After all, you will create a note that extends a large amount of credit to your buyer. No bank or mortgage company would extend similar credit without a credit check. You need to do the same, as this is an excellent way of investigating your prospective buyer's ability to pay!
Don't be reluctant to ask for a buyer's credit report for fear of seeming rude or untrusting. If there are problems, the time to find out is before you accept the buyer's offer. If you neglect this step and later discover problems with your buyer's credit, your buyer may not pay you on time, if at all. Furthermore, you may not be able to get a good price for your note if you ever need to sell it for cash -- why would someone want to buy a note where the payor is not paying?
The easiest way to obtain a credit report on your buyer is to ask the buyer to obtain their own credit report and then furnish you a copy. Credit reporting bureaus will not furnish your buyer's credit report to you because of privacy laws. However, they will furnish your buyer's credit report to the buyer.
Federal law allows all consumers to receive a free credit report annually from each of the following credit bureaus:
www.annualcreditreport.com will also direct your buyer to the above named bureaus.
Keep in mind that reading and understanding your buyer's credit report can be mindboggling. A practical way of learning how to read a credit report is to order a free credit report on yourself! You are familiar with your own finances, and if you can understand your own credit report, you will be better able to understand your buyer's.
Understand that these free CREDIT REPORTS do NOT include free CREDIT SCORES. For example, an 850 credit score is low risk, and 525 is high risk. Your prospective buyer will have to pay a small fee for the score, and you need to be specific in asking for both.
Once your buyer gets their credit report AND credit score, they should furnish a copy to you. This information will help you make an educated decision.
If the buyer refuses to provide a credit report, refuse to sell. No credit report, no sale.
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