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- If you want to get a loan without credit, start by looking for lenders who accept non-traditional credit histories like rent or utility payments.
- Other loan options for borrowers with limited credit history include alternative payday loans (PAL), secured loans, and 401 (k) loans.
- To create credit from scratch, try applying for a secured credit card or credit loan, or request to be added as an authorized user on someone else’s credit card.
- Get Your Free Credit Score With CreditKarma »
There are many reasons why you might not have a credit score. On the one hand, you may be young or have recently moved to the United States from overseas and haven’t had the opportunity to build a credit profile yet.
On the other hand, you might be someone who prefers to pay with cash or debit card and you just have never applied for a credit card. Not having credit doesn’t mean you’re financially irresponsible. In fact, many people without credit are incredibly creditworthy.
But while it’s better not to have credit than to have bad credit, the reality is that most lenders use credit scores in their lending decisions. And having no credit can make it harder to get approved for a mortgage, car loan, personal loan, credit card, or any other type of credit.
But you may be surprised to learn that it is possible to get a loan without credit. Below, we’ll discuss your best options if you need a loan today before explaining some ways to build your credit if you’re trying to prepare for a loan later.
How to get a loan without credit
If you are looking to get a loan with no credit history, here are five strategies to consider.
1. Look for lenders who accept non-traditional credit histories
Even without a credit score, there may be other ways to prove to a bank that you are a trustworthy borrower. Some lenders accept alternative data to assess a borrower’s risk, such as their bank account activity and payment history for 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. And even better if you can find a bank or credit union that has a branch near you so you can talk to someone face to face.
If you are planning to apply for a loan from a lender that offers manual underwriting, here are a few documents that you will probably want to gather beforehand:
- Recent W-2
- Recent tax returns
- The last four to six pay stubs
- Bank statements for the past three to six months
- Rent payment history for the last 12 to 24 months
- History of utility payments for the past 12 to 24 months
What Kinds of Loans Can You Get Without Credit?
Manual underwriting is the most common in the mortgage industry. Government-backed FHA, VA, and USDA loan programs will each consider borrowers without credit. But to get approval, all of your alternative credit information may need to be verified by a third-party non-traditional credit report.
If you are looking to take out a personal loan with a slim credit history, payday loans are not your only option. Several online lenders lend money to borrowers with limited credit history, including Avant, Prosper, Upstart, and Lending Club.
Some lenders may even offer “no credit check” personal loans. But you will want to check the fine print with these loans before signing on the dotted line. Loans “without a credit check” may be more likely to charge high interest rates and fees, or have unattractive terms.
2. Apply for an Alternative Payday Loan (ALP) from your credit union.
If you need emergency cash and are a member of a credit union, you should check to see if they offer Alternative Payday Loans (PAL). PALs are small, short-term loans intended to provide an alternative to high-cost payday loans.
These unsecured loans have terms of one to six months and the amounts borrowed can range from $ 200 to $ 1,000. Unlike payday loans, the PAL file fee cannot exceed $ 20 and the maximum interest rate is 28%.
However, you will not be eligible for a PAL until you have been a member of your credit union for at least one month. So unless you are already a member of a credit union, a PAL will not be a good option if you need money right away.
3. Get a secured loan by posting a collateral
Since unsecured loans do not require any collateral, lenders tend to require borrowers to have good credit scores in order to mitigate their risk. However, if you are able to put something of value as collateral, it might help you get a loan even without credit.
Here are some examples of assets that a lender can accept as collateral for a secured loan:
- Real estate (house or unbuilt property)
- Bank accounts
- Actions, bonds or mutual funds
- Insurance conditions
- Gold, silver or other precious metals
In addition to more lenient credit requirements, secured loans can also offer better interest rates or better terms. But the downside is that your warranty will be at risk if you miss a payment or default on your payment.
Make sure you weigh the pros and cons of a secured loan before taking one. And try to avoid predatory securities lenders or pawn shops who can put you on a financial treadmill by charging outrageous rates.
4. Borrow on your 401 (k)
If you don’t have credit and need quick access to a large sum of money, a 401 (k) loan might be a legitimate option. But there are several pros and cons you should consider before borrowing for your retirement.
The biggest advantage of 401 (k) loans is that you will not be dealing with a lender, so there is no credit score requirement. With a 401 (k) loan, you are actually borrowing from yourself, so the “interest” you pay goes directly to your 401 (k) account. In addition, as long as you stay with your employer, you will have up to five years to fully repay the loan.
If you plan to pay off the money quickly, a 401 (k) loan might be a much better borrowing choice than a payday loan, title loan, or pawnshop loan. However, be aware that if you do not replace the amount withdrawn on the due date, you will have to pay taxes on the funds plus a 10% penalty.
Also, if you lose your job or quit your employer, the entire loan matures and will need to be paid in full by this year’s tax return due date. So if your job situation is volatile, borrowing on your 401 (k) becomes a riskier decision.
5. Add a creditworthy co-signer to your loan application
Add a creditworthy family member or friend as a co-signer could help you get a loan when you don’t have credit. However, keep in mind that your co-signer’s credit will also be damaged if payments are missed or the loan becomes past due.
Entering into a co-signing relationship can be dangerous from both a financial and relationship point of view. If you do decide to have someone co-sign for you, you will need to take extra care to ensure that your payments are always made in full and on time.
How to create credit from scratch
If you don’t need to take out a loan right away, a better option may be to wait until you’ve had time to establish a credit history. One option for creating credit from scratch is to apply for a secured credit card.
Since borrowers need to make a cash deposit to get a secured card, lenders are more willing to offer them to consumers who have limited or no credit at all. And as long as you choose a card issuer that reports to the credit bureaus, your positive payment history can help you quickly start building a positive score.
Taking out a credit loan from a bank or credit union is another credit option.
Finally, you can request to be added as an authorized user to someone else’s credit card account. Just make sure the card issuer reports authorized user activity to the credit bureaus.
With each of these options, you may be able to build a strong credit score in six to 12 months or maybe even faster. And given the additional borrowing options you might have with strong credit, delaying your loan application until then might be best if you can afford to wait.