How To Get A Loan With No Credit History

Camino Financial09 Jan 2024
How To Get A Loan With No Credit History

Maybe you wonder how to get a loan with no credit, and it's easier than you might think; you should know you don't need to have a previous credit history to apply.

In this article, you'll learn how this is possible, the types of loans and alternatives, and a list of the best tips to get approved.

What Does It Mean To Have No Credit History?

Having no credit means you haven't borrowed money in the past, so there's no or very little information for credit bureaus to review and assign you a credit score. In other words, your credit report is blank; you have no FICO score. Here are the most common reasons people have no credit:
  • People are seeking first-time loans. They have never applied for a credit card or personal loan.
  • The person had a credit account, but it wasn't open for six months, the time needed to calculate a credit score.
  • The person closed the credit account or hasn't used it to make purchases.
  • Lenders haven't reported the credit activity to one or more credit bureaus.
  • They're young adults, new immigrants or have recently become single through a divorce or death of a spouse who handled all the finances.
In these situations, there are no credit accounts listed in your name. Don't worry; even if you haven't established a credit score, there are loans for people with no credit history. But there's something crucial you need to understand:
Having no credit is different from having bad credit.
Someone with bad credit has an unfavorable history due to not paying bills on time, bankruptcy, or accounts they never paid off.
#DidYouKnow Lenders tend to shy away from bad credit borrowers because they're a greater financial risk.

Common Loan Requirements

When seeking a loan with a limited credit history, you must understand what lenders will ask you. Because you don't have an existing credit report or a previous credit history, they'll ask for other things to make sure you can repay your loan.
  • Tax number: most lenders will only approve you if you have an SSN.
  • Minimum income: a common requirement is that you have a minimum monthly income. Expect to find lenders that ask you to earn over $5,000 each month.
  • Bank account: you'll need to have a checking or savings account. This will allow the lender to review your cash flows and income (and it's where they'll deposit your loan).

How To Get A Loan With No Credit History

Follow these simple steps to apply for a loan if you have no previous credit.

Find The Correct Lender

Research several lenders, then review and contrast other offerings. Compare loan amounts, repayment terms, interest rates, and requirements. Find the lender that best suits your needs. For example, if a lender requires collateral to secure the loan and you don't have any, look for another lender. Stay away from lenders that aren't transparent about their lending process or don't have a dedicated customer support team. Great lenders offer convenient services such as online account access or automatic payments. Find a lender willing to work with you even if you have no credit. Some lenders specialize in working with people who have no credit.
#CaminoTip Before you fill out a loan application, decide what loan amount fits within your budget. In other words, make sure that you can comfortably make the monthly payments.

Complete An Application

Make sure that you have all the information the application requires at hand. If you prepare ahead of time, you'll be able to complete it faster. Be prepared to provide information like:
  • your name
  • physical address
  • home information (like how much rent or mortgage you pay)
  • email address
  • phone number
  • date of birth
  • employment and income information
  • proof of identity, like your driver's license
  • tax identification number (SSN)
Once you complete the application, the lender will decide if you're a match for their product. If you get pre-approved and like the terms presented, the lender might ask you to share more information or documents. Also, prepared to share copies of tax returns, bank statements (some lenders do it electronically with tools like Plaid), or other financial documents.

Sign Your Contract And Receive Your Loan

If the lender approves your application, you must sign the loan agreement. Then, receiving your money will be a matter of time. Financial institutions can complete the whole process in just a couple of days.
#CaminoTip Don't forget to use the funds wisely. When you have money, it’s tempting to go on a shopping spree. It's better to stick to your original plan and budget.

Tips And Best Practices If You Have No FICO Score And Want A Loan

The following tips can increase your chances of getting approved.

Understand Loan Factors

Make sure you learn everything you can about loan terminology. This will help you find the lender that best suits your needs and budget. Plus, it will help you save money. Once you understand loan terminology, you can better compare products.

Start Small

Borrow a small amount, like $500, and make timely payments. Once you pay off that loan, your positive credit score will help you qualify for larger amounts. Develop a mindset that you'll only accept a loan offer with favorable repayment terms. If the monthly loan payment is too high or the term is too long, you may default on repaying the loan.

Ask Yourself These Questions Beforehand

Answer these questions to help you decide if a loan for no credit is right for you.
  • Considering your finances, do you have enough cash to pay for a loan? This is your Debt Service Coverage Ratio.
  • Why do you need a loan?
  • Can you afford the loan payments?
  • Does the lender seem trustworthy?
  • Does the loan require collateral such as a savings account or a vehicle?
  • Does the lender have a minimum credit score requirement before you can apply for a loan?
  • What fees does the lender charge? (Late payment fee, origination fee, etc.)
#DidYouKnow If you aren’t sure a lender is legitimate, check with the Better Business Bureau or use a business review website like Trustpilot.

Alternatives For People With No Credit History

You can find an alternative loan or credit card specifically designed for those with no previous credit history. By getting one of these products, you can build your credit over time to eventually qualify for more traditional loans.

Online Personal Loans

Online lenders simplify the loan process because applicants apply online and provide documentation electronically. There are both online personal and business loans.
By streamlining how you apply for funding, lenders can deposit money into an applicant’s bank account within 2 days, on average.

Credit-Builder Loan

Also referred to as starting over loans or starter loans, credit-builder loans teach you how to oversee your finances better. The lender holds the money in an account while you make payments. Thus, you build up savings and build credit simultaneously. Once you make the required payments, the lender deposits the money into your account. You can get these small personal loans from credit unions, community banks, and online lenders.

Credit Cards

Yes, there are credit cards for applicants with no credit history. Credit card loans are one of the easiest ways to build credit when paying your bills on time. You can build credit within 6 months at a cost that's not hard on your wallet. Most credit card companies report payments to the three major credit bureaus. A secured credit card requires a security deposit that works as your credit limit. This makes them good alternatives to building credit. On the other hand, unsecured credit cards require a credit check.
#DidYouKnow You can use a loan to pay credit cards.

P2P Loans

With a peer-to-peer loan, you borrow money from individual investors rather than a financial institution. They are primarily unsecured forms of financing for borrowers with no or low credit ratings. Since there's more competition among lenders, interest rates and fees may be lower than other types of personal loans.

Secured Loans

With a secured loan, you will need to put down some type of collateral as a guarantee to the loan. Examples of collateral are:
  • vehicle titles
  • savings accounts
  • property, like a house
  • other assets valuable assets
By pledging collateral, lenders are often willing to offer more favorable rates and terms than they might otherwise provide. If you default on your payments, the lender has legal access to the collateral you offered to secure the loan. Because the lender is sure they'll get back their investment (either with your payments or by seizing your collateral), they have more lenient requirements.
#CaminoTip Be very careful when applying for these loans, or you might put your assets at risk.

Credit Union Loans

Credit unions are non-profit organizations that are owned and operated by their members. This means they don't have shareholders to answer to, so they can offer loans at lower interest rates than traditional banks. They also tend to be more flexible when it comes to lending criteria, so if you have a limited or no credit history, you may still be able to qualify for a loan from a credit union.
#DidYouKnow PayPal has business loans too. The PayPal Working Capital Loan seems to have no minimum credit score requirement.

Find A Cosigner

A cosigner is someone who agrees to sign the loan with you and assumes responsibility for repaying the debt if you default. This can be a family member or friend, but choosing someone you trust and who has good credit for themselves is essential.
#DidYouKnow There are also a few government programs that can help you get loans if you have no FICO score.

No-Credit Loans You Should Avoid

The following products might seem enticing because they approve applicants with a bad credit score or no history. But they might not be the best alternatives. Here's why:

Payday Loans

Payday loans are short-term loans with no credit history needed; however, they have a considerable downside. Interest rates can be as high as 400% annually since the loans are usually due within 2 weeks. Fees mount up quickly, and the payday lenders directly access the borrower's savings account.

Cash Advances

A cash advance is a short-term loan typically repaid within a few weeks, and the interest rate is generally higher than that of a traditional loan. Credit cards or other lines of credit usually offer cash advances, but payday lenders or other sources also provide them. Unless you can pay off a cash advance each month, the lender will charge you interest. Before you make your first payment, banks charge transaction fees when it posts to your checking account. Many people get into trouble when they obtain several cash advances in one month and can't make minimum payments.

Title Loans

Similar to a payday loan, title loans are a quick way to get your hands on cash. The average APR for this type of loan is 300%. Lenders use your car's equity (the value of your vehicle minus what you owe) to determine the maximum amount they can lend. Once you sign the loan, you hand over your vehicle title to secure the loan. If you can't repay the loan, the lender can repossess your car.
#DidYouKnow There's a difference between APR and interest rate.

How To Build Credit Fast With No Credit History

You can get better loans in the future by improving your credit score.
  • Pay down or pay off your credit balances consistently each month.
  • Ask your landlord and utility company to report your payments to the major credit bureaus if you pay rent.
  • Once you start building good credit, make it a habit to review your credit reports to ensure there aren't any mistakes.
  • Get other financial products that help build credit.
#CaminoTip Remember to have patience; it takes time to build credit.

How To Monitor Your Credit

Assuming you already have a credit monitoring service in place, like Credit Karma, you can do a few things to make sure you're getting the most out of it. First, check your credit report regularly and look for errors or discrepancies. Report mistakes to the credit bureau and your credit monitoring service right away. Many credit monitoring services will allow you to dispute incorrect items through their website directly. Second, take advantage of any alerts your service has set up. For example, most services will alert you via email that a financial institution has inquired about your account. This makes it easy to catch any identity theft in the early stages. You can also get alerts if there are any changes that can negatively impact your credit score.
#DidYouKnow You can also build business credit.


Can you get a loan with no credit?

Yes, you can, whether you need money to pay for health care or other personal expense. Just know that lenders will charge higher interest rates and limit how much money they lend you.

How big of a loan can I get with no credit?

The loan amount could vary between $1,000 to $40,000 or more. A lender looks at information other than your credit score, such as your debt-to-income ratio and whether you have sufficient income to repay a loan. Once a lender assesses your financial health, they decide on a loan amount and assign an interest rate representing the least risk to you and them.

How to get approved for a loan with no credit?

Follow the tips and instructions above! But here's a quick rundown:
  • Improve your credit score
  • Choose the right lender for your needs
  • Know and understand the loan terms
  • Be prepared before you apply
  • Start at a credit level you can afford

What's the easiest loan to get with no credit?

A personal loan from a bank or credit union is typically the easiest to get with no credit. This type of loan is unsecured, meaning you don't have to pledge collateral, like your house or car. And because it's unsecured, the interest rate will be higher than if you were to secure the loan with collateral. Some online lenders also offer personal loans without a credit check, but these loans typically come with much higher interest rates and fees. So it's essential to read the terms and conditions carefully before applying.

Are there safe no-credit-check loans?

Most financial experts would agree that there is no such thing as a safe no-credit-check loan. Lenders who don't check your credit score take on more risk. As a result, these loans tend to come with much higher interest rates and fees.

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