If you don’t have a credit score, you’re not alone. In the United States, 26 million people are credit invisible, meaning they haven’t built their credit history yet. You could be invisible to credit for any of these reasons:
Fortunately, none of these things mean you don’t know how to manage your money. In fact, you may be very good at managing it. Some lenders understand this and may be willing to offer you a personal loan.
So, not having a credit history does not mean that you can’t get a personal loan.
A personal loan is an amount of money you borrow from a financial institution (such as a bank or credit union) or a state-licensed lender to use for your personal expenses.
Personal loans are a type of installment loan. This means that you have to pay for it regularly through fixed payments for a specific period of time. The time it takes to pay off a loan is known as the term of the loan.
Unlike a mortgage (used to buy a home) or an auto loan (used to buy a car), a personal loan can be used to cover a variety of expenses, such as:
Personal loan lenders want to verify that you can repay your loan on time. Typically, the first thing a lender sees is a credit score. Your credit score is a three-digit number used by lenders to decide how likely it is that you’ll make your payments on time.
Your credit score tells lenders different things:
For lenders, what you have done in the past is a good indicator of what you will do in the future. If you have a high credit score, it shows lenders that you have paid your debts consistently and on time. Therefore, lenders can safely assume that you will continue to do so with your new personal loan.
On the other hand, a lower credit score tells lenders that you have missed payments. Although there are many reasons for a low credit score, this is one of the most common. Therefore, lenders see you as a high-risk borrower or someone who is likely to miss some payments.
Your credit score comes from your credit report, which contains your credit history. If you don’t have enough credit history to draw from, you don’t have a credit score. To lenders, no credit is better than bad credit. But if you don’t have a credit score, lenders need to see more information in order to decide whether to lend you money.
So how can you get a personal loan with no credit history? These are some options:
By doing an online search, you can easily find a lender that accepts borrowers with no credit history. We have helped quite a few clients who, without any credit history, have been able to apply even for loan options without tax return and have got success, even though that’s not the norm but more the exception, we wanted to mention this so you know that it is possible.
Lenders who understand such a situation will look at other pieces of your financial history to decide if they think you’re a creditworthy borrower. For example, they can see your:
If you have a steady income, make your consistent payments on time, and have some money saved, lenders can see that you are financially responsible. This means that it is very likely that you will be approved for a personal loan.
Another way to assure lenders that you will repay your loan is to use collateral. Collateral is something of value that you own, and that your lender can take in case of any problem with your payments. By giving this guarantee, you help lenders make sure that you will pay them back in full. A guarantee comes in many forms, such as:
Loans that use collateral are called secured loans. Because the lender takes less risk, secured personal loans often offer better interest rates and better terms than other personal loans. Always make sure you make your payments on time, or you could lose your valuable collateral.
Applying for a loan with a co-signer is another effective way to assure lenders that you will make your payments on time. A co-signer is someone (usually a family member or friend) who agrees to be responsible for the loan with you.
This is how you apply for a personal loan with a co-signer:
A co-signer brings the security of his good credit score to your loan application. If you are unable to make the payments for any reason, your co-signer will be required to make those payments. If both of you miss a payment, both of your credit scores will suffer.
Although we all need this kind of help from time to time, it can be inconvenient, especially if you miss your payments, because what you do will directly affect your co-signer. The best way to thank your co-signer for his help is to make all your payments on time.
If you don’t need the loan right away, consider waiting to apply until you’ve built your credit history. After you have a good credit history and score, it will be easier for you to be approved for a personal loan. You may also qualify for a lower interest rate and more favorable loan terms.
Here are some ways to build your credit history:
A secured credit card is a safe way to build credit. You just need to find a secured credit card issuer and deposit some of your money into the issuer’s secure account. You will receive a credit card with a limit equal to the amount of your deposit. Then all you have to do is make purchases and payments. Making regular payments on your secured credit card on time shows the credit bureaus that you are capable of managing your debt. And with this, your credit history with the bureaus will bring you benefits that reflect your positive actions.
Another way to build your credit is to take out a credit-building loan. These loans do not give you money for personal expenses. Instead, they are used to prove that you can make your payments on time.
If you have a family member or friend willing to add you to their credit card account, they can help you establish your credit history. As long as they consistently make on-time payments, their good payment history is also reported on your behalf. Using a combination of these methods you can start building your credit history in as little as three to six months.