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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 you don’t have any credit history. Does that mean if you have little to no credit history, you can’t get a personal loan?
Not necessarily. But you may have a harder time qualifying for a loan with favorable interest rates. Read on to learn why a credit score is such an important factor in the loan application process, how to qualify for a personal loan without a substantial credit history, and how no-credit-check personal loans work.
Key Points
• People without a credit history may still be able to secure a personal loan, but with potentially higher interest rates and more stringent requirements.
• Establishing credit through options such as becoming an authorized user or obtaining a secured credit card can enhance chances of loan approval.
• Adding a cosigner with good credit can provide lenders with confidence, helping borrowers with no credit history to qualify for loans.
• Some lenders offer personal loans without credit checks, focusing instead on income and employment history, but these loans often carry higher fees and interest rates.
• It’s crucial to research and compare multiple lenders to find the most suitable personal loan options, considering factors such as credit requirements and loan terms.
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 are typically few limitations on what you can use a personal loan for, unlike a mortgage or student loan, which dictates what the borrower can spend the borrowed funds on.
Personal loans are available through banks, credit unions, and other lending institutions. With this type of loan, you receive the proceeds (or principal) in one lump sum and then repay it, with interest, in fixed monthly installments over the term of the loan.
💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
What Is a Credit Score?
A credit score is a three-digit number used to predict how likely you are to pay your bills on time. Your credit scores (yes, you have more than one) are calculated using information from your credit reports. 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 you currently have
• How long current loan accounts have been open
• How much available credit is currently being used
• New applications for credit
• Financial events such as debt in collections, bankruptcies, or foreclosures
When you apply for a loan, the lender will typically take your credit score into account to determine if they should lend you money, how much money they should lend you, and at what interest rate. The higher someone’s credit score is, generally, the higher the chances that they qualify for lending products with lower interest rates.
There are many different types of credit scores and scoring models. Your credit score depends on the credit scoring model used by the lender you’re applying with. Each lender also has its own personal loan credit score requirements.
How Do You Find Your Credit Score?
While you may not be able to track down every potential credit score you have, there are some ways you can find out what your FICO® credit score is, which is one of the most widely used credit scoring models. This can give you an idea of what your scores likely look like across the board.
• Credit card or other loan statements: You can often find your credit score by looking at your monthly credit card or loan statements or by logging in to your account online.
• Nonprofit counselors: If you’re working with a nonprofit credit counselor or a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor, they can often provide you with a complimentary copy of your credit report and credit score.
• Credit score services: You may be able to get your credit score without paying a fee from a credit score service as part of a free trial. But be careful about getting locked into a service that charges a monthly fee.
• Credit reporting agencies: You can buy your 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
If you’re trying to get a personal loan with little to no established credit, you may run into some challenges. Here are some steps that can help.
Establishing Credit
First-time personal loans for no-credit-history borrowers can be hard to get. To overcome this hurdle, you’ll want to start establishing credit. One way to do this is to become an authorized user on a trusted friend’s or family member’s existing credit account. Another way is to apply for a secured credit card backed by collateral. With each option, as you make on-time payments, you’ll begin to establish a credit history.
Finding a Cosigner
Another option that can help you 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 (who has good credit) is willing to make payments on the original borrower’s behalf (if the latter fails to do so), they have 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 that 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 that the lender takes 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 higher 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, such as 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
Some lenders offer personal loans with no credit check. Since they can’t rely on your credit history, they will typically focus on other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender. When applying for a personal loan with no credit check, it’s important to read the fine print and carefully weigh the benefits against the costs. Lenders will often charge higher interest rates and impose more fees to lessen their risk.
💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.
Checking Your Personal Loan Rate
If you’re in the market for a personal loan, it’s a good idea to research different lenders to find one that suits your needs. As you compare lenders, take note of their minimum credit requirements, loan amounts, repayment terms, funding time, and whether or not they offer joint, cosigned, or secured loans (which may help you get a lower rate).
Once you’ve identified a few lenders you prefer, it’s time to prequalify. This only involves a soft credit check and gives you a preview of the loan offers you may receive, including your estimated annual percentage rate (APR).
The Takeaway
Getting a personal loan without a credit history can be tricky, but it may be possible. You might want to focus on building your credit first by becoming an authorized user or getting a secured credit card. Adding a cosigner or using collateral are other ways to boost your chances. If you do look into loans without credit checks, just remember they often come with higher fees and interest rates. It pays to shop around, compare your options, and find the right fit for your situation.
SoFi offers personal loans with competitive fixed rates and same-day funding. Checking your rate takes just minutes.
FAQ
Can someone with no credit score get a personal loan?
Some lenders offer personal loans with no credit check. These lenders will look at other indicators of your ability to pay back the loan, such as your income, employment history, rental history, and any previous history with the lender. No credit check loans may come with higher rates and fees, though, so you’ll want to read the fine print.
How hard is it to get a personal loan with no credit score?
It isn’t necessarily hard to get a personal loan without a credit score, as personal loans for no-credit-history borrowers do exist. The bigger challenge is to get approved for a personal loan with a lower interest rate 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. However, these loans may come with much higher interest rates and less-than-ideal terms.
About the author
Jacqueline DeMarco
Jacqueline DeMarco is a freelance writer who specializes in financial topics. Her first job out of college was in the financial industry, and it was there she gained a passion for helping others understand tricky financial topics. Read full bio.
Photo credit: iStock/Yaroslav Olieinikov
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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
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.
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