We aren’t born with a credit history and, ironically, one of the only ways to build a credit history is to take out credit — which can be hard to do if someone doesn’t have an existing credit history. If a consumer is hoping to qualify for a personal loan, but they don’t have a credit history, they may find they have a harder time qualifying for a personal loan with favorable interest rates.
Keep reading to learn what options borrowers have for personal loans with no credit check, how to qualify for a personal loan without a substantial credit history, and why a credit score is such an important factor in the loan application process.
What a Personal Loan Is and How It Works
Personal loans are a type of lending product that allows consumers to borrow money to use for a wide variety of purposes. There is no limitation on what someone can use a personal loan for, unlike a mortgage or student loan that dictates what the borrower can spend the borrowed funds on. Personal loans are available through banks, credit unions, and other lending institutions. This type of loan is repaid with fixed-amount installments over an agreed upon period of time.
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What Is a Credit Score?
Credit scores are used to predict how likely a borrower is to pay a loan back on time and are based on different scoring models that use information from credit reports to determine a credit score. Different companies use different credit scoring models, but most take the following factors about a person’s financial history into account.
• Bill-paying history
• Current unpaid debt
• Number and type of loan accounts they currently have
• How long current loan accounts have been open
• How much available credit is currently being used
• New applications for credit
• Financial events like debt in collections, bankruptcy, or foreclosure
When a consumer applies to borrow money, lenders generally take their credit score into account to determine if they should lend them money, how much money they should lend them, and at what interest rates. The higher someone’s credit score is, the easier it generally is to qualify for lending products with low-interest rates.
There is no one credit score and what someone’s credit score is depends on the credit scoring model used by the lender they are applying to borrow from.
Each lender also has its own personal loan credit score requirements.
Recommended: What Is Considered a Bad Credit Score?
How Do You Find Your Credit Score?
While consumers might not be able to track down every potential credit score they have, there are some easy ways to secure their credit score to get an idea of what their score is across the board.
• Credit card or other loan statements. It’s fairly common for consumers to see their credit scores when reviewing their monthly credit card or loan statements, as many credit card issuers and lenders now include them on their monthly statement or on their online account.
• Non-profit counselors. If someone is working with non-profit credit counselors or HUD-approved housing counselors, those professionals can often provide their clients with a free copy of their credit report and credit score.
• Credit score services. Watch out for credit score services that require you pay a monthly fee. That being said, consumers can access their credit score through credit score services sometimes for free and sometimes for a price. Often these companies offer free trials that must be canceled or the consumer ends up with a monthly bill.
• Credit reporting agencies. Consumers can buy their credit score directly from the credit reporting companies.
Recommended: How To Read A Credit Report
What You Can Do If You Don’t Have a Credit Score
It’s fair if someone without a credit history is wondering, can I get a personal loan with no credit? Let’s examine what some of their options may be for making the process of obtaining a personal loan a bit easier.
Establishing Credit
Why are first-time personal loans for no credit history borrowers so hard to get? Unfortunately, it can be challenging to establish credit if no one will give a consumer access to credit products because they don’t have an established credit history. The way to get around this is to either become an authorized user on a trusted friend or family member’s existing credit account or to apply for a secured credit card backed by collateral. With each option, as on-time payments are made, a credit history begins to be established.
Finding a Cosigner
Another option that can make it easier to qualify for credit products without a strong credit history is to add a cosigner (or co-applicant) to a loan or credit card. When lenders see that someone else (someone with good credit) is willing to cosign and make payments on the original borrower’s behalf if they fail to do so, they have a lot more confidence in lending them money.
Using Collateral
Adding collateral to a personal loan means that the lender has something they can seize and use to recoup their losses if the borrower defaults on their payments. For example, auto loans are secured by the car the loan is financing. Before using collateral, a borrower needs to make sure they can make their loan payments on time each month or they risk the lender taking possession of their collateral.
Personal Loan Options With No Credit History
If a borrower is really struggling to find a personal loan because they don’t have a credit history, they can pursue a loan that doesn’t require a credit check. This type of lending product does exist but often comes with high-interest rates and fees to make up for the risk the lender feels they are taking on. In some cases, loans that don’t require credit checks, like payday loans, can be predatory, so consumers should make sure they know what they’re getting into when taking out this type of personal loan.
Applying for a Personal Loan With No Credit
When applying for a personal loan without a strong credit history, the application generally focuses more on other important financial factors like the applicant’s income, and employment history, debt-to-income ratio, and their existing relationship with the lender. Finding a personal loan that doesn’t require a credit check will make it easier to focus on other qualifications.
Checking Your Personal Loan Rate
Before taking out a personal loan, it’s important for potential borrowers to do research on the potential personal loan rates they’ll qualify for and shop around for the best interest rates for their needs. Consumers can get an estimate for their SoFi Personal Loan rate in just one minute.
FAQ
Can someone with no credit score get a personal loan?
It is possible to get a personal loan with no credit score. Lenders can also take current sources of debt, income, and potential collateral into consideration during the application process.
How hard is it to get a personal loan with no credit score?
It isn’t necessarily harder to get a personal loan without a credit score, as personal loans for no credit history borrowers do exist. The bigger challenge is being approved for a personal loan with low interest rates and that doesn’t require collateral or a cosigner.
Do no-credit-score no-cosigner loans exist?
Yes, loans that don’t require a credit check or a cosigner do exist. Again, the problem here is qualifying for favorable rates and terms.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Photo credit: iStock/Yaroslav Olieinikov
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