Getting a Personal Loan With No Credit

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Reviewed byAlvin Yam, CFP
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Updated: March 14, 2024

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A personal loan is a versatile financial tool allowing individuals to borrow a lump sum of money from a lending institution, typically repaid with interest over a set period. You can use these loans for a variety of purposes, ranging from consolidating debt to funding major purchases or covering unexpected expenses.

If you have no credit history, obtaining a personal loan is still possible but may be more challenging. Lenders typically evaluate credit scores to gauge a borrower's reliability, making the lack of such a record a significant hurdle in loan approval.

Regardless, you can find a personal loan with no credit through some online lenders, credit-builder loans and more. By exploring available options and knowing how to apply, you can secure the funds you need while laying the groundwork for your financial future.

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What It Means to Have No Credit

A credit score generally represents the creditworthiness of an individual based on their credit history. Credit scores (ranging from 300 to 850) influence a lender's decision to grant a personal loan and determine the terms and interest rates offered. A higher score indicates a better credit history, making obtaining loans with favorable terms easier.

Credit bureaus, including Experian, Equifax and TransUnion, calculate credit scores and consider several factors. These include:

  • Payment history (35%)
  • Amounts owed (35%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

Having no credit means you don't have a credit history that credit bureaus can evaluate. This situation is common in several instances:

  • Young adults or students: These consumers often haven't had the opportunity to use credit cards or loans, leaving them without a credit track record.
  • New residents in a country: People who have recently moved to a new country usually start from scratch with their credit history, as past credit activities from their home country are not typically transferred.
  • Individuals who prefer cash transactions: Some people use cash or debit for all transactions, avoiding credit products and not building a credit history.
  • People who haven't used credit in years: If an individual hasn't used credit for an extended period, their credit history can become dormant, leading to a lack of a score.

Without a credit history, reaching financial goals can be less straightforward. Since lenders use it as a basis of judgment to approve loan or credit card applications, it's harder to tell if you can repay them, which can lead to application denials. This makes applying for most kinds of loans and credit cards more difficult.

Loan Options With No Credit

Securing a personal loan with no credit is challenging but not impossible. If you don't have a credit history, you can explore various loan options to find creative ways to access the financing you need.

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RED FLAGS TO AVOID

Some lenders in the market claim to offer personal loans with no credit checks, but some may be scams. Knowing the signs can help you avoid losing your hard-earned money to scammers:

  • No credit checks
  • Demanding upfront payment
  • No online company reviews or primarily negative reviews
  • Not licensed to service loans in your state of residence
  • No contact information or address

How to Get a Personal Loan With No Credit

Understanding how to apply for a personal loan when you have no credit helps you prepare for the steps you need to take. This knowledge makes the process smoother and increases your chances of approval.

1

Determine the Amount You Need

Assess your financial situation to decide how much money you need to borrow. It's helpful to borrow only the amount necessary to meet your specific need, as larger loans can be challenging to secure and manage without a credit history. This step will also help you focus on loans matching your requirements.

2

Shop Around for Lenders

Research various lenders open to working with individuals without credit. This includes online lenders, credit unions, family members and local banks. Each lender has different criteria; some may offer products specifically designed for those without a credit history.

3

Compare Loan Offers

Once you have a list of potential lenders, compare their loan terms, interest rates and any associated fees. Look for options that offer the most favorable conditions, such as lower interest rates or flexible repayment terms. Remember, the terms can vary significantly between lenders, especially for borrowers without credit.

4

Submit Loan Application

After choosing a lender, complete the loan application process. This typically involves filling out an application form and providing required documentation, such as proof of income or employment. Be thorough and accurate in your application to avoid any delays or rejections.

5

Receive the Funds

Once your loan is approved, the lender will typically deposit the funds directly into your bank account. The time it takes to receive the funds can vary, so ask the lender about their disbursement timeline. Once you receive the loan, manage it responsibly to build a positive credit history.

CONSIDER A CO-SIGNER

A co-signer is a potential path to getting a personal loan with no credit. If your co-signer has good credit, they can potentially help you get better rates and terms. This is because they hold equal liability for the loan — if you are unable to repay it, your co-signer will be on the hook instead.

Ways to Build Your Credit

Having good credit is immensely beneficial as it opens doors to better loan terms, lower interest rates and easier approval for rentals and mortgages. But to get good credit, you need to demonstrate responsible financial behavior. Here are effective ways to build your credit:

  • Pay Bills on Time: Consistently paying bills on time is one of the most significant factors in your credit score. This includes not just credit card payments but also rent, utilities and other recurring bills. Setting up automatic payments can help ensure you never miss a due date.

  • Keep Debt Levels Low: High levels of debt can negatively impact your credit score. Aim to keep your credit utilization — the ratio of your debt to your credit limit — below 30%, but a ratio below 10% will result in an even better score. Paying off existing debts and not taking on new ones will help maintain a low credit utilization ratio.

  • Limit Credit Inquiries: Each time you apply for credit, it results in a hard inquiry on your credit report, which can temporarily lower your score. Limit the number of new credit applications to avoid accumulating too many hard inquiries. This is especially important when you're just starting to build your credit history.

  • Practice Good Financial Habits: Beyond specific credit-building products, good financial habits are key. This includes budgeting effectively, saving money and avoiding overdrafts on your bank accounts. Responsible financial behavior sets a solid foundation for building and maintaining good credit.

Remember, building your credit is a gradual process, and consistent, responsible financial behavior will help you get there.

EXPERT TIP

Keep in mind that your payment history is the most significant factor when building your credit, accounting for 35% of your FICO credit score. — Alvin Yam, CFP®

How to Monitor Your Credit

Monitoring your credit is a major aspect of building and maintaining a healthy financial profile, especially for those starting with no credit history.

  • Get a Copy of Your Credit Report: You can request a free copy of your credit report annually from each of the three major credit bureaus: TransUnion, Equifax and Experian. Reviewing these reports is vital for consumers, particularly those with no credit, to understand their current credit status and check for inaccuracies.

  • Monitor Your Credit Health Regularly: Regular monitoring of your credit helps you track your progress in building credit. For those just starting out, this lets you see how your financial actions shape your credit history.

  • Use Credit Monitoring Services: Many free and paid credit monitoring services provide regular updates and alerts on your credit status. These services can be beneficial for individuals with no credit history to keep informed of any changes and potential fraudulent activities on their accounts.

Keeping an eye on your credit helps you understand how your financial behaviors impact your credit score and identify any potential issues early on.

FAQ About Getting a Personal Loan With No Credit

Obtaining a personal loan with no credit score can be challenging — but not impossible. MoneyGeek answered some frequently asked questions to help you better understand the ins and outs of getting a personal loan with no credit.

A good credit score is between 670 and 739 in the FICO range, while 700 to 749 is good in the VantageScore range. Some lenders may accept lower scores if the borrower has a stable income or other positive factors.

It depends on the lender. The maximum amount you can borrow can vary from lender to lender, along with how they weigh your financial circumstances and personal information.

You can build credit using a credit-builder loan or applying for loans through online lenders. You can also become an authorized user on a family member's or friend's card or apply for a secured credit card.

Building a credit score can take anywhere between one to six months, depending on the type of credit score. Based on FICO, the most popular credit scoring model, you may generate a credit score after six months of reported payment history. The baseline is to make consistent monthly payments on your loans or credit cards to increase your credit score.

No single loan is the easiest to apply for, as there are many types of personal loans. For instance, many loans will be easier to qualify for if you have a co-signer, while some may be easier to apply for if you have collateral. However, it will still depend on the lender and their requirements.

The maximum credit score you can have is 850 for both FICO and VantageScore.

The maximum loan amount for individuals without a credit history can vary widely depending on the lender. Borrowers with less established credit may face shorter terms or higher rates on any approvals. Borrowers can first opt to prequalify for a rough estimate from lenders.

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The content on this page is accurate as of the posting/last updated date; however, some of the rates mentioned may have changed. We recommend visiting the lender's website for the most up-to-date information available.

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