June 25, 2024 |7 min read
Looking to finance a purchase that doesn’t fall neatly into a loan category like a mortgage or an auto loan does? Personal loans and credit cards can be options because of the freedom they give a borrower to make a wide range of purchases.
But getting almost any loan without a credit history can be a challenge, according to the Consumer Financial Protection Bureau (CFPB). You may have some options, though. Learn more about how you may get a personal loan without an established credit history. Plus, learn about alternative ways to borrow money when a personal loan isn’t an option.
What you’ll learn:
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In general, personal loans are relatively small, unsecured loans that allow borrowers to spend as they see fit.
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Having little to no credit history can make borrowing more difficult. But it doesn’t automatically mean some type of personal loan is out of reach.
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Building credit takes time, but starting now could help in the future.
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When used responsibly, secured credit cards, secured loans and credit-builder loans can be used to build credit.
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How do personal loans work?
Personal loans are offered by all sorts of lenders, including traditional banks, credit unions, online banks and peer-to-peer (P2P) lending sites. Many advertise these 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 loans for a house or a car typically are.
Many personal loans are unsecured. But there may be exceptions or secured options. It depends on the lender. Plus some loans, such as title or payday 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. And then access to credit can become an issue. The CFPB refers to this situation as being credit invisible or unscorable. You might also see it referred to as having an insufficient or thin credit file.
But having no credit isn’t the same as bad credit. And someone can be credit invisible or unscorable for a number of reasons, like when they have:
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No history of applying for loans or credit cards: Examples could include a younger person on their own for the first time or someone who just moved from another country.
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Credit accounts with no recent activity: The CFPB calls this a stale file. If no activity has been reported within 6 months of a credit score being calculated, that could affect scoring.
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Credit accounts that are closed: This is another example of a stale file. For example, getting married, on its own, doesn’t affect your credit. But if someone who used to have their own accounts closes them after getting married, that could affect their credit.
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Credit accounts 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.
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Credit history that 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, a person may be unscorable.
Having little to no credit history can make borrowing difficult. But being credit invisible doesn’t automatically mean a personal loan is out of reach.
What’s the required credit score for a personal loan?
The required credit score for a personal loan varies from lender to lender. Each lender can set their own requirements, meaning some may expect applicants to have good credit scores while others may offer loans to people with bad credit or no credit. People with bad credit or no credit history at all may have fewer options when it comes to getting a loan. Even if they’re approved, their loan may come with a higher interest rate.
Alternatives to getting a loan with no credit
If a personal loan doesn’t seem possible now, there may be other ways to borrow money. Some might even help you build credit if you practice responsible habits like making on-time payments every month.
Personal loans with no credit checks
Some lenders offer personal loans with no credit check. Since they can’t rely on a person’s credit history, they may look at other indicators of a person’s ability to pay back the loan, such as their rental history or total income. When borrowing money with no credit check, it’s important to read the fine print and carefully weigh the benefits against the risks.
Authorized users
You could become an authorized user on the credit card account of a trusted family member or friend. While you’ll be able to make purchases with your card, the primary cardholder is ultimately responsible for all the charges made on the account. Becoming an authorized user could build your credit if you both use the account responsibly and that activity is reported to the credit bureaus. But be aware that negative actions could hurt both of 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.
How does a credit-builder loan work? Money, usually a loan amount between $300 and $1,000, is deposited into a secure account, like a savings account. The borrower then pays the amount off in installments over a set period, usually between 6 months and 2 years. As payments are made, they’re reported to credit bureaus. The lender will typically make the funds available to you once you’ve paid off the loan.
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 3 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 and 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.
How to get a loan with no credit FAQ
Here are the answers to a few frequently asked questions about getting a loan with no credit history:
Is credit history required to qualify for a loan?
Not always. While many lenders prefer to issue loans to borrowers with established credit histories and high credit scores, some may have more flexible or relaxed qualification requirements. You may be able to find a lender that will approve you for a personal loan even with no credit history. And once you take out that loan, you may be able to build your credit history, which could make it easier to qualify for loans in the future.
Can I get a loan without going through a credit check?
There are some lenders that may be willing to give you a loan without running a credit check. But those lenders may charge high interest rates and high fees on what you borrow. You may be better off applying for a secured credit card or asking a friend or family member to loan you the money.
What is the easiest type of loan to get?
Auto title loans, payday loans and advances, and pawn shop loans typically don’t require credit checks and, as a result, may be the easiest to qualify for. But these loans can be predatory and often come with high origination fees, high interest rates and short repayment terms that could make paying back what you borrow more difficult.
Key takeaways: Getting a loan with no credit
Getting a loan without an established credit history can be challenging, but it’s not impossible. If you’re unable to qualify for a personal loan, there are alternatives. For example, you might consider a credit card designed for those with a less-than-perfect score. Check out Capital One’s credit cards for fair and building credit. You can also see if you’re pre-approved for offers without affecting your credit scores.
