You don’t need credit to get credit. Despite how often you may have heard the opposite, the truth is that you don’t always need a credit history to take out a loan or get approved for a credit card. Otherwise, no one would ever have credit. Discover more about the role credit plays when you apply for a loan and whether it’s possible to take out a loan with no credit.
How Can Credit Impact Loan Approval?
Your credit score and credit history can impact your ability to get a loan, but policies vary by lender. It’s up to the lender who reviews your application to decide how big a role your credit plays when applying or whether it’s considered at all.
Many — but not all — lenders base loan approval on credit score or credit history because these factors help the lender make a more educated assessment of the risk you present as a borrower. If your credit history shows you always or almost always pay your bills on time and manage money responsibly, it’s more likely you’ll continue to do so in the future. That can make some lenders more willing to offer you a loan or a lower interest rate.
Potential lenders that consider your credit history may just look at your credit score, or they may consider the entire credit profile. Lenders that look only at credit scores tend to have policies about what score you need to get approved. If your score doesn’t fall in that range, the lender may not approve you or may only offer you limited products.
Banks and other lenders that look at the entire credit profile typically consider the credit score. However, a score that falls outside a set range may not immediately cause you to be denied a loan. The lender might go on to review the details of your credit report to understand why your score is lower than they’d like to see. Depending on what factors are included in that report, they may still offer you a loan.
How Can Credit Impact Loan Cost?
Your credit score and credit history don’t just impact whether you can get a loan. They can also impact the cost of your loan. The higher the risk you present as a borrower, the more likely you are to cost the lender money down the road by missing payments or defaulting on your loan. Some lenders charge higher interest rates for people with bad credit or no credit. This ensures the lender recoups more money faster to mitigate the loss of someone defaulting on the loan later. Higher interest rates mean that your loan costs more over time.
No Credit vs. Bad Credit When Getting a Loan
No credit is different from bad credit. Bad credit means your credit score is low because of negative factors on your credit report, including missed or defaulted payments, collections accounts, foreclosures, excessive debt or past bankruptcies. No credit means you haven’t established credit or enough credit. If you’ve never had credit, you won’t have a credit profile or score. If you’ve only had one account for a very short time, then you’ll have a credit profile, but your thin credit history may not give lenders enough information to make a good assessment.
Having no credit might seem like you have a clean slate and creditors would be happy to work with you. However, without a credit history, lenders can’t evaluate the risk of lending to you. On their side, it’s not a positive blank slate. It’s a complete mystery, which means they have to assume the risk is high. Having no credit puts you in the same boat as someone with bad credit. You may pay more in interest or be unable to get certain loans.
How to Get a Loan With No Credit
That doesn’t mean you can’t get a loan with no credit (or bad credit, for that matter). In fact, there’s an entire set of financial products designed to help people build credit by getting loans. They’re usually referred to as credit-building loans but are also called bad credit loans or no credit loans.
Here are some things to consider (and look for) when you’re getting a loan with no credit:
- Look for loans that don’t require good credit or a credit check. Applying for loans you can’t qualify for can leave hard inquiries on your credit profile. These have a small negative impact on your credit score, so you don’t want to rack up a bunch — especially if you don’t have much credit to begin with. Do your research before applying, and ensure the loan doesn’t require a credit check or good credit.
- Remember that you might pay more in interest. A lender willing to take a chance on someone with no credit may charge higher fees or interest. Be aware of this and budget for it, but don’t accept outrageous fees you can’t afford just to get credit. Shop around to find a responsible lender.
- Choose a lender that reports to the credit bureaus. One of the benefits of getting your first loan is that you can start building credit to make the process easier in the future. But that only works if your lender reports payments to the credit bureaus. Look for a personal loan company that reports to multiple major credit bureaus to maximize this benefit.
Getting a Cosigner for Your Loan
A cosigner is someone who is added to the loan as a backup. They’re responsible for payments if the primary borrower can’t pay. Adding a cosigner is one way to get a loan with no credit because the lender is splitting the risk between two people. A cosigner’s credit is also affected by the loan, so you have to find someone who trusts you and is willing to risk their own credit score.
FAQs
Is it hard to get a loan with no credit score?
There are many credit-building loan options you may be approved for without a credit score. However, you probably won’t be approved for a significant amount of money or a low interest rate. You may also need to prove your income to show you can make payments.
How do I build my credit?
The best way to improve your credit is to make payments on time and reduce your utilization. If you’re trying to create credit, getting a secured credit card or credit building loan may be an excellent place to start.
How long does it take to build your credit?
It takes about six months to create a credit score from scratch, but improving an existing score can happen faster, depending on the decisions you make. For example, making a large payment on your credit card balance may improve your credit quickly.
Can I get a loan at 17 with a cosigner?
Minors can’t legally take out a loan, even with a cosigner. This is because minors can’t enter into any contractual agreements.
