How to Get a Loan with No Credit: Essential Tips (2024)

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• To get a loan with no credit, look for lenders that accept non-traditional credit histories.
• Borrowers with limited credit histories may consider payday alternative loans and secured loans.
• To build credit from scratch, try applying for a secured credit card or credit-builder loan.

Introduction

There are many reasons why you might not have a credit score. On one hand, you may be young or recently moved to the US and haven't had the opportunity to build a credit profile.

On the other hand, you may prefer to pay for things with cash or a debit card and have simply never applied for a credit card. Having no credit history doesn't mean you're financially irresponsible. In fact, many people with no credit are very creditworthy and may qualify for no credit loans.

Challenges of Obtaining a Loan with No Credit

While having no credit is much better than having bad credit, the reality is most lenders use credit scores in their lending decisions. It may be more difficult for them to approve you for a mortgage, auto loan, debt consolidation loan, credit card, or any other type of credit without a credit history.

But you may be surprised to learn that it is possible to get no credit loans.

If you have a bad credit history, consider our picks for the best lenders for bad credit.

Options for Getting a Loan with No Credit

Secured Loans

Since unsecured loans don't require any collateral, lenders tend to require that borrowers have strong credit scores to mitigate their risk. However, if you're able to put down something of value as collateral, it could help you secure a loan even with no credit.

Here are a few examples of assets that a lender may accept as collateral for a secured loan:

• Real estate (home or undeveloped property)
• Vehicles
• Bank accounts
• Stocks, bonds, or mutual funds
• Insurance policies
• Collectibles
• Gold, silver, or other precious metals

In addition to more lenient credit requirements, secured loans may also offer better interest rates or terms. But the downside is that your collateral will be at risk if you miss a payment or default.

Make sure you weigh the pros and cons of a secured loan before you take one out. And try to steer clear of predatory title loan or pawn shop loan lenders that can place you on a financial treadmill by charging exorbitant rates.

Credit-Builder Loans

Having varied types of credit is one way to improve your credit score. While you may have several credit cards, installment loans can be expensive, and out of reach for those with bad credit. Credit builder loans require borrowers to pay off their loans before they get the money. These loans pose little risk to lenders, so borrowers with a bad credit score can qualify.

Borrow from Your 401(k)

If you have no credit and need quick access to a large chunk of cash, a 401(k) loan could be a legitimate option. But there are several pros and cons that you need to consider before you borrow from your retirement.

The biggest advantage of 401(k) loans is that you won't be dealing with a lender, so there is no loan credit score requirement. With a 401(k) loan, you're actually borrowing from yourself, so the "interest" you pay just goes right into your 401(k) account. Plus, as long as you stay with your employer, you'll have up to five years to pay back the loan in full.

If you plan to repay the money quickly, a 401(k) loan could be a far more favorable borrowing choice than a payday loan, title loan, or pawn shop loan. However, know that if you don't replace the withdrawn amount by the due date, you'll have to pay taxes on the funds plus a 10% penalty.

Also, if you lose your job or leave your employer, the entire loan comes due and will need to be paid in full by the due date of that year's tax return. So if your job situation is unstable or you currently don't have a job, borrowing from your 401(k) becomes a riskier move.

Payday Alternative Loan (PAL)

If you need emergency cash and you're a credit union member, check to see if it offers Payday Alternative Loans (PALs). PALs are small, short-term loans meant to offer an alternative to high-cost payday loans.

These unsecured loans come with terms of one to six months and borrowed amounts can range from $200 to $1,000. Unlike payday loans, PAL application fees cannot exceed $20 and the maximum interest rate is 28%.

However, you won't qualify for a PAL until you've been a member of your credit union for at least one month. So unless you're already a credit union member, a PAL won't be a good option if you need immediate cash.

Steps to Apply for a Loan with No Credit

Researching potential lenders

Even without a credit score, you may be able to prove to a bank that you're a trustworthy borrower in other ways. Some will accept alternative data to assess a borrower's risk, like bank account activity and payment history toward rent, utilities, and other bills.

To get approved for a loan using your non-traditional credit history, you may need to contact a lender directly. It's even better if you can find a bank or credit union that has a local branch near you so you can talk to someone face-to-face.

Preparing necessary documentation

If you plan to apply for a loan with a lender that offers manual underwriting, here are a few documents that you'll probably want to collect beforehand:

• Recent W-2s
• Recent tax returns
• Last four to six pay stubs
• Last three to six monthly bank statements
• Rent payment history from the last 12 to 24 months
• Utility payment history from the last 12 to 24 months

Considering a co-signer

Adding a creditworthy family member or friend as a cosigner could help you get a loan when you have no credit. However, keep in mind that your co-signer's own credit will also be damaged if payments are missed or the loan becomes delinquent.

Read More: Co-signing vs. co-borrowing

Entering into a cosigning relationship can be dangerous from both a financial and relationship perspective. If you do decide to ask someone to cosign for you, take extra care to make sure your payments are made in full and on time.

Building Your Credit for the Future

Secured Credit Cards

A secured credit card is a type of credit card whose line of credit is backed by a security deposit. Because it doesn't require a credit history or credit score, secured credit cards are a great way to build credit history.

Becoming an Authorized User On a Credit Card

As anauthorized user, a credit card will be put under your name and your credit history, but it's attached to the primary cardholder's account. So when the primary cardholder makes their payments, it also goes toward building your credit history. This is an appealing option for parents or guardians looking to help minors build up their credit.

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