Credit is the gateway to financial opportunity, but without a credit history of at least 18 good months, many opportunities can slip through the cracks. However, zero credit is not the end all for financial breakthroughs. The good news is there are ways to get a personal loan with no credit history.
Yes, some lenders shy away from loaning funds to individuals without credit — but others see a blank credit canvas as an occasion to extend a little grace and take a chance because most individuals with no credit have exhibited self-control and also a significant degree of financial responsibility.
With that in mind, here are some tips designed to help you get a personal loan without an adequate credit history:
Get Your Papers in Order
Your credit history usually helps lenders determine your level of financial responsibility. However, without an adequate history, they can still rely on other economic factors to ascertain your risk level. This helps with traditional bank and online loans. Of course, lenders like to know how you’re going to repay a loan. You can bolster your case by having documents like bank statements and pay stubs available to show you have a steady income. W-2s and utility bill receipts also reflect proof of residency and steady employment.
Try a Credit Builder Loan
There are several viable ways to build credit; a safe and smart way to do so is by using a credit builder loan. Credit builder loans help people build and restore their credit history. Here’s how it works: A credible lender will allot you a small loan amount, which then gets deposited into savings or CD account. Every month you’re required to use those funds to pay back the long via monthly payments. The lender then reports each on-time payments to Equifax or TransUnion. After you’ve paid off the initial loan, you gain access to the account. Meanwhile, you establish a positive credit history.
Build Credit Ahead of Time
Secured cards help individuals without credit establish good credit. They work like regular credit cards with the exception of an upfront deposit, which determines the limit. For example, if you want a $500 credit limit, the lending bank asks for a $500 deposit that sits in an interest-bearing account. Make multiple small transactions on the cards. After a period of time, most banks will reward your responsible payment history by converting the card into an unsecured card.
Rely on a Co-Signer
Sometimes you may have no choice but to piggyback off someone with excellent credit; lenders refer to these people as co-signers. Co-signers use their positive credit history as a proxy for someone with zero or bad credit. You can get a family member or close friend to do this. However, few people are willing to cosign for a loan because the loan affects their credit status too — and if you default on the loan, they’re responsible for repaying the loan. So make sure both of you understand the risk before you go that route.
Get a Loan
Having no credit history doesn’t necessarily mean you’ll automatically be declined by a lender. It helps to be proactive. For example, gather all your financial documents. Seek out ways to re-build your credit, then apply for the loan you want. If you want to learn more about building credit, check out Len’s Credit Card Basics series; it will teach you everything you need to know about credit cards.
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