Many lenders don't want to be your first loan and the great rates offered by peer-to-peer lending sites aren't yet in your reach because they require a credit score. Even online lenders like Avant who are known for being flexible, require a credit score of 580+ in order to fund your loan.
But don't worry anymore about how to get a loan with no credit, we're going to break down the details on how to get 4 different types of loans without having established credit right now. The 4 types of loans we'll talk about are:
- Getting a Credit Card
- Car Loans
- Personal Loans
- Mortgage Loans
Your situation of not having credit is very common but usually ignored, people just leave you to figure it out for yourself.
There's tons of information on how to build up a good credit history starting from scratch and even how to turn poor credit scores into good scores.
It's easy to find loans available for people with fair to good credit, and even mediocre credit. But what happens if you have absolutely no credit history and you need a loan now?
That's a huge problem haunting young people, immigrants that are new to the country and even those who have avoided using any kind of credit so that they could stay out of debt, now they are debt-free but still financially crippled because they don't have credit in their name. And surprisingly, many senior citizens who've paid off their debts long time ago, things like car loans and home mortgages, also often find that their lack of recent borrowing activity has caused them to fall off of the credit radar and no longer generate a credit score.
But don't worry, you aren't helpless. It's possible to get loans and credit without having an established credit history. We'll teach you how to get a loan with no credit today.
It'll require a little bit of work in many cases, but it's well worth the effort. Some kinds of loans offered to people without credit provide a lot of options, while others require a ton of paperwork or collateral to get approved for the loan.
Looking on the bright side though, you will immediately start building a credit history, so the loan or line of business credit you attempt to get after this first loan will be easier to get if you pay your loans back on time.
So let's talk about the four kinds of loans you'll likely want and how to get your loan with no credit.
How To Get a Credit Card With No Credit
Getting a credit card loan with no credit is the easiest type of credit to get from the 4 groups we'll teach you about.
There are 3 basic ways to start building credit without having credit.
1. Become an authorized user on a credit card belonging to a family member or friend. The credit card company can't deny you because there is no application process.
The friend or family member who is the primary cardholder simply adds you as an authorized user and you'll get your own credit card with your name on it. The account and payment history will be reported to the credit bureaus, filling up your newly created credit reports with valuable credit history.
Since you'll have no legal obligation to pay the debt on the card it may be hard to convince someone outside of your family to do this for you. But whoever does this for you, be sure to pay off your debts regularly and on time. This will help show creditors that you are responsible and it'll keep your personal relationships on good terms.
2. Get someone to co-sign in order to help you qualify for a credit card. This means that you and your co-signer are both legally liable for any debt you acquire. If someone doesn't pay what's owed, each person's credit linked to the credit card account gets smudged so be sure to pay.
3. Get a secured credit card. These cards require a security deposit that serves as collateral against your credit line. The amount of the deposit, typically between $300 and $600, equals your credit limit.
The downside to these cards is usability. Usability is an issue with secured cards because the credit limits are generally very low unless you're able to make a large deposit with the card provider.
How To Get a Car Loan With No Credit
Auto loan lenders usually look at the four C's to give out a loan: credit, character, collateral and capacity. But if you don't have credit history yet, an auto loan lender might still approve you for a car loan if the other C's are above average.
For example, they'll want to know if you've been at your job for a year or more? Is it a permanent, full-time job with steady pay? Is the potential car payment less than 20% of your gross income?
These factors, along with the length of time at your current home and education level, are other key factors auto lenders look at to judge your credit worthiness.
One disadvantage to not having any credit history in this situation is that the auto loan lender might ask for a larger down payment than the usual 10% or want the sales price to be close to the blue book value of the vehicle. This is because the auto lender wants to be assured that there's equity in the deal and that it is collectible if you default on payments.
Once again, another option is to get a co-signer for your auto loan.
The remaining alternatives are often costly. Car title loans come with uncomfortably high interest rates, and buy-here-pay-here car lots are often overpriced and even place GPS systems in cars so that they can find the car for repossession should there be any missed payments. These are not only last resort options, but something that you should avoid.
How to Apply For a Personal Loan With No Credit
Getting a personal loan with no credit history is much more difficult than getting a credit card. Even getting approved for low-rate peer-to-peer personal loan requires a credit score of 640+.
The reason for this is that traditional banks operate on risk, and they have to properly underwrite loans to make sure they are making prudent loans to people who will likely pay the loan back.
With traditional banks the borrower would usually need to borrow against the collateral of their home to get a personal loan with no credit history. That may work for Americans who have paid their debt obligations, including a mortgage. In the absence of a credit file, the bank will look long and hard at a person's income, other assets and the value of their property. In special situations, lenders may consider other forms of collateral besides a home.
Otherwise, the options are limited. Consumers can get a co-signer to qualify for a small personal loan if a friend or family member is willing to take the risk. A small group of banks are also testing the water with personal loans that consider direct deposit history of paychecks and allow consumers to borrow part of the deposit amount. But these types of loans are virtually impossible to find for the majority of Americans.
How to Apply for a Mortgage Loan With No Credit
Getting a home mortgage loan with no credit takes more time, lots of paperwork and far more manual underwriting. But it definitely can be done and FHA loans are the key to getting your loan with no credit.
The Federal Housing Administration, or FHA, insures mortgages against defaulted payments through approved lenders and approves borrowers with riskier credit or smaller down payments. FHA provides non-traditional credit guidelines for borrowers with no credit history.
The two lists below show the non-traditional credit items that FHA takes into consideration for approving borrowers with little to no credit.
Group I accounts are considered more predictive of repayment than Group II payments, but several Group II items can make up for a shortfall of Group I accounts.
It really depends on the strength of the loan terms, this is a loan that can be given, so potential borrowers need to talk to someone experienced to put it together correctly.
Getting Loans Without Credit History Far From Impossible
The financial tactics discussed in this article should give you a huge head start, knowing how to get a loan with no credit will help you establish yourself financially and help you take the steps needed to get the funding you want in order to pursue your needs and financially take care of yourself and your family. You may have to take some extra steps or make some sacrifices to get yourself started in the world of credit but after you have your first loan you'll have your foot in the door and will have the beginnings of a track record that future lenders can look at and judge you by.
How To Get a Loan With No Credit & Build Credit Momentum
The most important aspect of getting the loans you want in the future is paying off your first loan regularly and on time and keeping that practice as you go for each piece of credit extended to you. Soon you'll have companies chasing you down to give you money. That's how to get a loan with no credit and start building credit momentum.
Enjoyed our "How to get a loan with no credit" article? Get related article here: Learn about getting peer-to-peer loans.