How to Get a Loan with No Credit History (Step-by-Step)
Now that we have discussed some of the best lenders for consumers without any credit history, let’s demonstrate how you can give yourself the best chance for credit approval without falling victim to predatory lending practices or overpaying on interest.
Remember, consumers with bad credit or excellent credit both have an established credit history that lenders can use to determine interest rates and loan terms, but the process for getting credit from scratch is a little different.
#1. Compare Lenders and Rates
Although taking the first deal a lender offers may be tempting, it is often not the best deal you will find.
Although you may not have a credit score, you most likely have other indicators and assets you can provide to a lender to help lower your interest rate and maximum loan balance.
For example, you may be making a respectable income and, up until now, have paid cash for everything, and you want to build a new deck that costs around $10,000.
If you don’t want to part with that much cash at once, financing the deck with a personal loan may be an affordable and efficient way to complete your project without leaving you strapped for cash.
A personal loan may be a good choice because you will most likely have a fixed interest rate and monthly payment.
If you used a credit card to finance your build, then you run the risk of accruing a large amount of revolving interest charges that could be up to 30%.
Once you find a handful of lenders you would be interested in working with, look at their reviews and average rates for the $10,000 loan financed from one year to five years.
This will give you a good idea of what to expect if one of the lenders approves you so you can determine if you are getting a fair deal.
#2. Use a Lending Marketplace
After you get a handle on how much you can expect the loans to charge, use a lending marketplace like CashUSAto have the best chance of finding a lender that matches your needs and will work with you if you have no credit history.
Certain lenders like LendingPoint are leveraging data and personal finance information to provide fair and accurate loan terms.
For example, they may take your income and bank account information to create a model that will determine how much of a loan you can afford and the likelihood of missing a payment.
If you have a consistent source of income and a history of making regular payments, such as rent, then you will be in a better position to be approved for a personal loan.
>> More: Best Bad Credit Loans
#3. Choose the Best No Credit History Loan
Research is vital in helping you find a lender who offers a no-credit history loan and getting the best rates for your financial situation. Whether you are on the market for a short-term loan, direct deposit loan, or low-income loan, researching all opportunities is a must.
To determine the best loan for you, you need to start with your budget and priorities. Ask yourself questions like:
- Would I prefer a lower monthly payment at the price of higher interest paid?
- Would I prefer a higher monthly payment, so I pay less in interest overall and pay off the loan faster?
The answers to these questions differ for various income levels and financial situations, but these are two of the most important budgeting questions when you apply for a new loan.
On the one hand, paying less interest is generally ideal, but if you are concerned about your monthly cash flow, you may opt for the lower monthly payments.
Even if you start with the lower monthly payments, you may be able to refinance or consolidate the loan down the road as you build your credit history.
#4. Complete Online Application
If this is your first time applying for credit online, you will need to enter personal information such as your name, address, income, and other details, including your education level.
The lender will compile your information or send your profile to affiliate lenders if you are applying on an online lending marketplace.
After you submit your application, you may receive an approval or denial, depending on the lender’s criteria. You should work with a lender you trust, but if you can find an online marketplace to work with, you may get more bang for your buck.
Since working with an online marketplace connects you with many different lenders, you will only need to submit one application that the lenders can sort through. Although this may be the beginning of your credit journey, you probably want to avoid submitting too many applications at once.
#5. Receive Your Funds
Once your application is approved, you will need to provide banking information so the lender can deposit the funds.
Most modern lending services and brokers can have the funds to you within 1-3 business days – anything more than this may be a red flag.
Before you finalize your application, ensure that the lender has a reputation and good testimony for quickly disbursing funds.
#6. Make Monthly Payments
Once you have the funds, you can spend them to finance your project or purchase or whatever you took the loan out for.
Since this may be your first foray into building credit, making your monthly payment on time is imperative.
Although you were approved for a loan with no credit history, this loan becomes the first credit reported on your credit score. Your credit score comprises factors including oldest issued credit, missed payments, available credit, credit utilization, and more.
If you are worried about missing or forgetting payments, you can schedule automatic payments from your bank account so that you will only need to worry about keeping sufficient funds in the account.
Another effective strategy to avoid defaulting on your loan is to keep 3-4 months’ worth of payments in an emergency savings account in case your job changes or you have a lapse in income.
Tips for Getting a Personal Loan with No Credit History
Now that we have covered different lenders who can work with consumers with no credit history let’s discuss some tips on maximizing your chance for approval and effectively managing your credit once you get it.
Start Building Credit Responsibly
Building credit can be exciting and slightly nerve-wracking if you’ve never had it before. Credit histories paint a picture of how you handle money, if you reliably pay your debts, and if you are a risk to a lender.
Your credit score is a dynamic two-way street that can go up and down, but as long as you are aware of how it works and don’t borrow above your means. The benefits of a good credit score include access to more credit at lower interest rates, which can profoundly impact your finances and quality of life.
Even if you get a ding in your credit score, some steps and programs can help you tackle your debt and bring your credit score back up.
Apply with a Co-Signer
One of the most efficient ways to start your credit history is by having a family member or trusted friend add you as a co-signer on one of their credit lines.
Many parents add their children as authorized users, which can help turbo-charge their credit journey by giving them a chance to use their credit without being entirely responsible for it.
If you are interested in being an authorized user, make sure you trust the person and make sure they are financially stable. On the chance that they suddenly close the credit account you are linked to, you may take a hit on your credit score, even if it didn’t have anything to do with you.
Apply for a Secured Personal Loan
Secured credit can be a great way to build credit on your own without the need for a co-signer. When you open a secured credit account, you need to identify and submit collateral that the creditor can take if you default on the loan.
Depending on the loan size, this could be a car, your investment accounts, or more. Secured credit cards may be a good alternative to a secured personal loan because the collateral is money you deposit to establish your credit limit.
For example, if you open a secured credit card account with a $500 deposit, you will have a credit limit of $500 which will be collateral if you max it out and don’t make a payment.
Frequently Asked Questions
The beginning of your credit history can seem intimidating if you don’t know what to do, so we’ll look at some of the biggest questions for borrowers without any credit history.
Is It Possible to Get a Loan with No Credit History?
Short answer – Yes, it is possible to get a loan with no credit history; everyone needs to start somewhere, right?
However, suppose you have no credit history at all. In that case, you must be prepared to dig up a few more files and provide additional income verification to your lender to validate your financial situation.
Once you establish a credit history, other lenders will pull a hard credit inquiry from the credit bureaus, which will expedite the process in the future.
Is It Hard to Get a Loan with No Credit History?
While getting a loan with no credit history is possible, it is more difficult than if you had an established credit score. Fewer lenders offer loans to consumers with no credit, even if they have a consistent income.
What Do Lenders Look for in Personal Loan Applications?
Lenders generally check your credit history, income, and debt to income ratio when they are deciding how much credit to offer on a personal loan. However, if you have no debt or credit history, you may need to prove that you pay your bills (rent, electric, etc.) and more income verification, including pay stubs and bank sips.
>> More: Best Personal Loans with No Income Verification
Is it Safe to Get a Personal Loan with No Credit History?
If you work with a reputable lender, then you will most likely begin building credit safely and efficiently. Avoid payday loans, pawnshop loans, and cash advance loans because they can charge up to 500% in interest plus fees. Loans like these can accrue quickly and leave you in a mountain of debt with no benefit; they don’t even report them to the credit bureaus, so you can’t build credit even if you pay them off.
>> Learn More: What Is a Payday Loan?
Summary: No Credit History Personal Loans
Bottom Line: Best Personal Loans with No Credit History
Getting a loan with no credit history requires some diligence and research, but you will be at the beginning of your credit journey once you have it. Each lender may have unique criteria when working with someone without a credit history, so your best bet is to do your research and work with an online marketplace.
To review no credit history loan options, analysts evaluated over 25+ personal loan lenders. Our evaluation included reviewing the lenders eligibility requirements, security, transparency, rates, fees, and funding times. Read our editorial guidelines and personal loan review methodology to learn more about the evaluation criteria.