How to Get a Loan With No Credit History

What does it mean to have no credit history?

Essentially, credit history is a record of how well you handle debt, so if you’ve never borrowed money before, you’ll have no credit reports and therefore no credit history.

When you borrow money from a lender or credit bureau, all information concerning your debt is used to create a credit report. Looking at these reports is how bureaus determine your credit score.

Having no credit history is not the same as having bad credit, which is caused by missing payments or defaulting on debt. With no debt to draw from, reporting bureaus have nothing to score, leaving you with no history at all.

There are many reasons why you might have no credit history, including:

• You’ve never applied for a loan or a credit card.
• You have a credit account but it hasn’t been used in over two years.
• Your credit account has been opened too recently to be scored.
• You’ve recently immigrated to the United States.

Can you get a loan with no credit history?

It’s possible to get a loan with no credit history, but because loans are awarded based on creditworthiness, lack of credit means it can be more difficult to satisfy the requirements needed for the best personal loans.

Lenders look at your credit score to estimate how much risk they’ll incur by giving you a loan. Without any records to draw from, they may be more reluctant to lend to you. If they decide to let you borrow, you may face additional loan terms. For example, you might only be approved for a small loan and may even incur higher interest rates.

How to get a loan with no credit history

While getting a loan might be more difficult without credit, it’s not impossible.

Here are some methods that can help you borrow the money you need without a credit score. You can also check out our page on loans with no credit check:

Obtain a secured loan

A secured loan is backed up by an asset owned by the borrower. Rather than using a credit score to determine how much risk to assume, lenders use assets as collateral to protect investments. If the debt is not paid, they can take possession of the assets to cover the expense.

Collateral for a secured loan can come in many forms, including cars, houses, savings accounts and stocks. The idea is that risking personal assets incentivizes borrowers to pay their debt on time, making lenders more likely to give you a loan even without credit.

Ask your bank or credit union

Sometimes you can get a loan with help from an organization that already knows your financial habits. If you’re an established member of a bank or credit union, ask to meet with an advisor to discuss suitable loan options and find out what you might prequalify for. Banks and credit unions draw on other information, like spending habits and deposits, to determine your eligibility for a loan. If your activity checks out, they may just let you borrow.

Use a cosigner

Asking someone with good credit to cosign a loan can increase your chance of approval. This means that they’ll be responsible for the loan if you, the borrower, fail to pay it. Using a cosigner adds their credit score and income to your loan application, making it more appealing to lenders. Cosigning can even give you access to higher loan amounts and lower interest rates. However, because this method transfers the risk to the cosigner, you may have trouble finding someone willing to lend you their credit score. Before cosigning, it’s important to assess your ability to pay back a hefty loan.

Borrow from family or friends

In an emergency, you may not have time to search for a loan that you qualify for without credit. When this happens, consider asking friends and family for financial support. Drawing up a loan agreement can ease the awkwardness of borrowing money. For example, consider presenting a plan that details your monthly payments and perhaps even sets an interest rate to show you’re serious about repayment.

Apply for a credit builder loan

A credit builder loan can help you borrow money and build a credit history at the same time. Credit builder loans take your monthly payments, apply them to the loan’s principal and interest and then report this activity to credit bureaus. This can help you prove your creditworthiness, making it easier to borrow money in the future. Keep in mind that credit builder loans are small and you won’t have access to the money until after you’ve paid the loan in full. If you need to borrow money fast, this may not be the best option.

Watch out for these predatory loan practices

If you need to borrow money now, it’s tempting to apply for a payday loan. But with extremely high interest rates, these loans can be difficult to pay back, trapping you in a dangerous debt cycle. For example, let’s say you’re in need of a few hundred dollars. You can walk into a store and present a pay stub, and a payday lender will loan you the money to be repaid at your next paycheck. It seems simple until you realize payday loan interest rates can be 400% or more (compared to a high-interest credit card rate of 28-36%), meaning you might owe much more than you borrowed. Use our loan interest calculator to make sure you can afford your repayments.

Pawn shop loans are just as important to avoid. Not only do they have a high cost to borrow, but they also may trap you in a cycle of repeat borrowing.

Should I wait to apply for a personal loan?

If your need to borrow money isn’t urgent, it’s best to skip the loan and focus on building your credit history. With a good credit score, you can reduce the possibility of being denied a loan and you may qualify for low-interest loans that have better terms overall. This can set you up with a solid credit rating and you’ll likely save money in the long run.

How to establish credit if you have no credit history

Building credit now can set you up for easy borrowing in the future. Luckily, there are many ways to establish credit even if your history is nonexistent:

• Become an authorized user on someone’s credit card. If your friend or family member has good credit, this is a low-risk way of building up your history.
• Apply for a secured credit card. Secured cards require an initial deposit to fund your credit line. Over time, your credit limit can go up as your card becomes unsecured.
• Monitor your credit score. Once you’ve started generating credit reports, keeping a close eye on your activity can help you build financial habits that boost your score.