How to Get a Loan With No Credit
What to know if you don’t have a credit history and you’re considering applying for a personal loan
Looking to finance a purchase that doesn’t fall neatly into a loan category like a mortgage or an auto loan does? Some personal loans can fund all kinds of things because of the freedom they give a borrower.
But without a credit history, getting any loan can be a challenge, according to the Consumer Financial Protection Bureau (CFPB). That doesn’t mean there aren’t options, though. Keep reading to learn more about how to get a personal loan even if you haven’t yet established credit.
How Do Personal Loans Work?
Personal loans are offered by all sorts of lenders, including traditional banks, online banks and peer-to-peer lending sites. Many advertise personal loans as relatively small, unsecured loans that allow borrowers to spend as they see fit. That means lending decisions are based on creditworthiness and not backed by collateral like a car or a house.
But lenders may have their own definitions. And some lenders may offer secured loans. And some loans, such as payday or title loans, may have additional risks or be more expensive. So be sure you fully understand the terms of any loan agreement before making a commitment.
What Does It Mean to Have No Credit?
You can think of credit history as a track record of how someone handles debt. It covers past debts and current status, according to the CFPB. The agency says that information is compiled in credit reports. And those reports can then be used to calculate credit scores—and to judge how likely a person is to pay back a loan in the future.
But if someone has little or no credit history, it makes it hard to do any of that, which can make access to credit an issue. It’s more common than you might think. According to the latest CFPB research, almost 20% of U.S. adults are affected by a lack of credit history. The CFPB refers to them as being “credit invisible” or “unscorable.”
It helps to know that having no credit isn’t the same as having bad credit. And people might be credit invisible or unscorable for a number of reasons. You might also see it called having a thin or insufficient credit file. And it could happen for a number of reasons. Here are a few:
- They’ve never applied for a loan or credit card in the past. For example, a younger person striking out on their own for the first time or someone who just moved from another country.
- Their credit accounts lack any recent activity. The CFPB calls this a stale file. If no activity has been reported within six months of a credit score being calculated, that could affect scoring.
- Their credit accounts are closed. This is another example of a stale file. You could see this happen to the credit of a married person. Getting married doesn’t automatically combine a couple’s credit histories. So if someone who used to have their own accounts closes them after tying the knot, that could affect their credit.
- They have credit, but their account was opened too recently. There are a lot of factors that play into timing, but the CFPB explains that it can take six months—sometimes even longer—for a new credit account to be scorable.
- Their credit history isn’t being reported. There are multiple credit bureaus that compile credit reports. And there are multiple credit scores and scoring models. If credit activity isn’t reported to all bureaus, a person may be unscorable, depending on which report and scoring model are used.
Having little to no credit history can be difficult when it comes to borrowing. But being credit invisible doesn’t automatically mean a personal loan is out of reach.
Is It Possible to Get a Loan With No Credit?
Because personal loans might be based on creditworthiness, having no credit can make it more difficult to get approved. And available loans may come with higher interest rates, which can increase borrowing costs.
If you can’t get a personal loan on your own or you think rates are too high, you might see whether you can find a co-signer. Having a co-signer gives lenders extra guarantees, according to the CFPB. That’s because a co-signer agrees to pay off the loan if you can’t.
But it’s important to have mutual trust with your co-signer. Any negative actions could end up on both your credit reports.
It takes time and responsible behaviors, but another way to make yourself look more attractive for a personal loan is to build your credit before applying.
Alternatives and Credit-Building Methods
If a personal loan isn’t in the cards now, there may be alternatives. And some might even help you build credit if you do things like make on-time payments every month. Unfortunately, you can’t build credit overnight. But with patience and responsible habits, the following methods could get things rolling.
- Secured credit cards: A secured card gets its name from the security deposit required after you get approved. The deposit is similar to what you pay a landlord before renting an apartment. Once you have a card, like the Secured Mastercard® from Capital One, you can use it to make purchases just as you would with a traditional card. Deposit amounts and credit limits vary depending on the secured card and issuer. So do the terms that decide when a deposit can be refunded.
- Student credit cards: Start building credit as a student and you could lay the groundwork for future goals, such as buying a house. Many student credit cards were created with young people who are new to credit in mind. They often function pretty much the same as a traditional credit card. And some, like the Journey Student Card from Capital One, even offer cash back rewards.
- Authorized user: You could become an authorized user if a loved one or someone else who trusts you gives you access to their credit card account. You might get your own card, but the original cardholder is ultimately accountable for making payments every month. If the account is used responsibly and that activity is reported to credit bureaus, being an authorized user could help you build credit. But be aware: Negative actions could hurt your credit.
- Credit-builder loans: A credit-builder loan doesn’t function like a personal loan, because it won’t give you the same fast access to cash. But the CFPB says it’s one way you can build credit. The loan works in reverse of how you might expect. Money, usually an amount between $300 and $1,000, is deposited into a secure account. The borrower then pays the amount off in installments over a set period of time, usually between six months and two years. As payments are made, they’re reported to credit bureaus. And once the total is reached, the borrower gets access to the account.
If you find a method that works for you, remember it’s key to be responsible with your finances. Making sure you’re using credit responsibly and keeping up with all your bills is important. In some cases, paying rent or other bills can even help you build credit.
How to Monitor Your Credit
Without a credit history, your personal loan opportunities could be limited. And the loans you’re offered might come with higher interest rates. But if you can take the time to build good credit before you apply for a loan, it could be beneficial.
To see where you stand, you can get copies of your credit reports from the three major credit bureaus at AnnualCreditReport.com.
You can also monitor your credit with a tool like CreditWise from Capital One. It lets you access your TransUnion® credit report weekly. And you can see your VantageScore® 3.0 credit score as often as you like. Plus, the built-in CreditWise Simulator can help you see the possible effects of taking out a personal loan.
The best part is it’s free for everyone to use, and using it won’t hurt your credit.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many scoring models used by lenders. It likely won’t be the same model your lender uses, but it is an accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Alerts are based on changes to your TransUnion and Experian® credit reports and information we find on the dark web. The tool is not guaranteed to detect all identity theft.
The CreditWise Simulator provides an estimate of your score change and does not guarantee how your score may change.