How to get a personal loan with no credit history
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Looking for first-time personal loans with no credit history? This guide will teach you about the types of loans you can get, and where to get them. (iStock)
Personal loans are a flexible form of credit. You can use them for anything, from starting a business to paying for a vacation or consolidating other high-interest debts.
Getting personal loans with no credit history can be a challenge but it’s possible. And you can improve your approval odds by sweetening the deal for lenders with a cosigner or collateral.
How can I have no credit history?
Your credit history plays an important role in your finances. Credit rating agencies use the information in your credit report to calculate your credit score, which helps lenders make lending decisions. Generally, the higher your credit score, the easier it is to get approved for credit cards, mortgages, car loans and other types of credit — and to get favorable rates and terms.
Yet roughly 26 million Americans are "credit invisible," according to the Consumer Financial Protection Bureau. This means they have no credit history with any of the three major credit reporting agencies (Equifax, Experian and TransUnion) or their files don’t contain enough recent information to calculate a credit score.
You may be credit invisible if:
- You’re new to the country. Even if you have a credit history in your home country, your credit history doesn’t extend to the U.S.
- You’re new to using credit. If you’ve never opened a credit account, financed a car or taken out a student loan, you likely don’t have enough information in your credit report to have a credit score. Or you may have opened your account too recently for it to be scorable.
- You haven’t used credit in quite a while. If you haven’t used credit for the past 10 years or so, your old accounts may have dropped off your credit report, leaving nothing in your credit history to base a score on.
Applying for personal loans with no credit history
Lenders use your credit score to assess the amount of risk they could be taking on by loaning you money. While it’s possible to get a personal loan with no credit history, it can make the borrowing process more difficult. And lenders who are willing to lend you money may charge higher interest rates.
For that reason, it’s important to look for lenders who consider other factors besides what’s included in your credit report. This can include your employment history, income level, debt-to-income ratio, bank statements and more.
You can easily compare rates on personal loans through Credible.
4 of the best lenders that offer no-credit loans
If you’re looking for a personal loan for the first time, and have no credit history, here are some Credible partner lenders to consider.
Avant offers personal loans ranging from $2,000 to $35,000.
While most Avant customers have a credit score between 600 and 700, the company also offers secured personal loans and tailors their loan underwriting process to each applicant’s unique credit situation and history.
Minimum credit score: 550
Repayment terms: Two to five years
Fees: Administration fee up to 4.75% of the loan amount, $25 late fee if a scheduled payment isn’t paid in full within 10 days after the due date and $15 Dishonored Payment Fee
LendingPoint offers personal loans ranging from $2,000 to $36,500.
The lender specializes in working with borrowers with lower credit scores and claims to have a "proprietary smart technology" that assesses the creditworthiness of applicants based on more than just a credit score.
Minimum credit score: 580
Repayment terms: 24 to 60 months
Fees: Origination fee from 0% to 6% may apply, depending on your state of residence
OneMain Financial offers personal loans ranging from $1,500 to $20,000.
The company doesn’t have a minimum credit score for personal loan borrowers and specializes in working with people with credit problems.
Minimum credit score: None
Repayment terms: 24, 36, 48 or 60 months
Fees: Origination fees may be a flat amount ranging from $25 to $500, or a percentage of your loan amount ranging from 1% to 10%, depending on the state where you open your loan.
Upstart offers personal loans ranging from $1,000 to $50,000.
Unlike many other lenders, the company explicitly states that it’s willing to work with borrowers with no credit history.
Minimum credit score: 580
Repayment terms: Three to five years
Fees: Origination fee of 0% to 8% of the loan amount, late fee of $15 or 5% of the past due balance, whichever is greater, and $15 ACH Return or Check Refund Fee
Check out Credible to compare personal loan rates from various lenders.
How to apply for a personal loan with no credit history
When applying for a personal loan with no credit history, it’s important to shop around. This is true any time you make a big financial commitment, but especially when you don’t have a pre-established credit history, because the interest rates available to you are usually higher than those offered to borrowers with good credit. Look for lenders who focus on other factors besides your credit score, such as your income.
Here’s how to apply for a personal loan with no credit history.
- Get pre-approved online. Most lenders, including those mentioned above, allow you to get prequalified online without running a hard credit check that will impact your credit score. This will give you a sense of the rate you may qualify for without going through the full application process.
- Compare offers. When reviewing your loan offers, be sure to compare APRs. The APR is a more complete estimate of how much it will cost you to borrow money, including the interest rate and fees. Also, compare loan terms and origination fees.
- Apply for the loan. Once you choose an offer, let the lender know you want to move ahead and complete a full loan application. You’ll likely need to submit additional information to the lender to get final loan approval.
- Close on your loan. Once the lender approves your loan, they’ll send you the final loan documents for signature. Sign the documents, and the lender will deposit your funds into your bank account — sometimes within 24 hours.
- Build your credit. Be sure to make your monthly loan payments on time. This will help you build credit, giving you more financing options in the future.
Alternatives to personal loans when you have no credit history
Getting a personal loan when you have no credit history can be difficult and costly. Fortunately, you have alternatives.
Find a cosigner
A cosigner is a person, such as a parent or close family member, who promises to pay back the loan if you stop making payments — this makes your application more appealing to lenders. Getting a cosigner can help you qualify for a loan you might not be eligible to get on your own and may allow you to qualify for a lower interest rate.
Get a loan through your home bank or credit union
Your home bank or credit union may approve you for a loan based on your existing relationship with them. If you’ve shown that you’ve handled your checking or savings account with them well for several years, they may be willing to look past the lack of credit history.
Take out a secured loan
A secured personal loan allows you to use an asset, such as a vehicle or certificate of deposit (CD), as collateral. Because the lender can take the asset if you fail to make payments, lenders may be more willing to work with you, and you may qualify for a lower interest rate than that available on an unsecured loan.
Just keep in mind that secured loans can be risky — if you run into financial troubles and can’t make your payments, you risk losing your collateral.
How to establish credit if you have no credit history
It’s important to establish credit history since your payment history and credit history length make up 50% of your FICO credit score. Plus, a high credit score makes it easier for you to make large purchases, such as a home or car, with the lowest possible interest rates.
The first step in establishing your credit history is to apply for credit. Many people start by applying for a credit card.
It can be difficult to get approved for a major credit card with no credit history, so consider starting with a store credit card. Retail store cards— especially "closed-loop" cards that can only be used at one store or a group of stores — can be easier to get with no credit history than co-branded cards that feature a major credit card issuer’s logo and can be used anywhere.
Get a secured credit card
Secured credit cards require a security deposit in exchange for a line of credit. The deposit is usually equal to your credit limit. Once you start using the card, the issuer sends you monthly statements. If you don’t pay the bill, the card issuer takes the money from your deposit. Eventually, once you establish that you can handle credit responsibly, you may be able to upgrade to an unsecured card.
Before applying, make sure the card issuer reports payment data to the three major credit bureaus so your positive payment history will help you build credit. You’ll also want to look for a card with a low annual fee.
Take out a credit-builder loan
A credit-builder loan is an installment loan that exists to help people build credit. You apply for the loan with a bank, credit union or online lender.
Instead of giving you the loan proceeds in cash, the lender deposits them into a savings account or CD. You start making monthly payments, and the lender reports those payments to one or more of the three major credit bureaus, helping you build a positive credit history. Once you’ve paid the loan in full, you’ll receive the money from the CD or savings account, less any interest or administrative fees.
This can be a great way to start building your credit, and credit-builder loans are generally easier to qualify for than standard loans. On the downside, you have to wait until the end of your repayment term to get your funds, and interest rates on credit-builder loans tend to be high.
Become an authorized user
If your parents or another trusted friend or family member with good credit are willing to help you out, they can add you as an authorized user on one of their existing credit cards. Their on-time payments and low utilization on that credit card will help you build credit, even if you never use the card. Plus, becoming an authorized user can reduce the time it takes for you to get a FICO score.
Credible allows you to compare rates on personal loans from different lenders at once.