How to get a personal loan with no credit score

You'll find financing options for the "credit invisible" — but you might want to start with building your credit first.

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It sounds like a Catch-22: To be eligible for most loans, you need a history of paying off debt. But what if you’ve never held debt and you’re “credit invisible” — with a history too scant of financial activity to result in a credit score.

Without a long and strong credit history, you might not have as many options for borrowing — but that doesn’t mean you aren’t eligible for a loan.

Can I really get a loan without established credit?

Yes, but it can be challenging to find a lender willing to work with you. You might also need to adjust your expectations if you’re looking for, say, a large bank loan of $50,000. Consider looking into:

  • Online lenders. An online lender might be a good place to start, especially for smaller loans. Many of these lenders use new technologies and alternative sources of data to determine your creditworthiness. They believe a broader look at your income and financial habits can better predict your creditworthiness than merely relying on your credit score.

More traditional lenders — like banks and credit unions — are typically not willing to take on the risk of a borrower without a credit history. That’s because your credit report reveals to your lender how you’ve handled debt in the past. With no credit history, you’re considered a wild card. These lenders also consider your income, employment status and debt-to-income ratio when reviewing your application.

Where to get a loan with no credit history

Despite lacking a credit history, you’ll find several options for getting your hands on a loan.

  • Lenders that accept cosigners. If you have a friend or relative with a strong credit history, consider asking if they’d be willing to cosign a personal loan. When you apply with a cosigner, your lender considers that person’s credit history and employment status when determining approval, terms and conditions for a loan. Importantly, your cosigner is also responsible for paying off the loan if you default. Don’t confuse a cosigner with a co-applicant or joint applicant. With a co-applicant or joint applicant, the lender considers both of your credit histories equally.
  • Friends and family. Likely your least expensive option for borrowing money is asking your loved ones for a personal loan. Keep it informal if you have a close relationship with your relatives, or use a service like Loanable to set interest rates and terms that result in a legally binding contract. That way, your relatives earn money on the interest, and you get a more competitive rate than you would with a traditional lender.
  • Credit unions. Credit unions commit to reinvesting earnings to keep savings rates high and loan rates low. They’re often more likely to offer loan options for credit union members with no credit history. These lenders usually give competitive loan terms and interest rates, as well as low fees.
  • Short-term loans. Short-term loans, also known as payday loans, should be reserved for financial emergencies only. They often come with excruciatingly high APRs, which are sometimes in the triple digits, and not all companies offering loans are legit. Most payday lenders also don’t report to credit agencies, so if you’re looking to take out a loan to build or repair your credit history, a payday loan isn’t the way to go. The only way that a payday loan shows up on your credit history is if you’re unable to pay it back — and that won’t be much help for getting credit in the future. Instead, consider an alternative to get over your financial hump.
  • Crypto-backed loans. Got bitcoin but no credit score? You might want to look into getting a loan backed by your cryptocurrency assets. These lenders typically don’t rely on the conventional ways of evaluating your creditworthiness, so your lack of credit history might not be a problem. But beware: Since crypto is a highly unstable form of currency, these loans can be risky. If the value of your coin drops enough, you could be forced to repay your loan in full with very little notice. In addition, it may be near impossible to find a crypto-backed loan in Canada since cryptocurrency is not regulated.

Compare personal loans that allow cosigners

Looking for a loan that doesn’t require a credit check?

When you don’t have a credit score, your borrowing options are slightly different than those for people with bad credit. Lenders that are willing to work with people who have no credit score often run a hard check on your cosigner’s credit.

However, no-credit-check lenders tend to assume that you have bad credit rather than no credit. No-credit-check loans can be more expensive than other options for borrowers with bad credit. Read our comprehensive guide to bad-credit loans to find options that fit your specific financial circumstances.

How to build credit to get a loan

If you don’t need the funds right away, consider building your credit score first.

  • Get a credit-builder loan. Some credit unions and banks offer credit accounts designed to help you build your credit. Instead of giving you the amount up front, the lender puts the funds into a savings account. You pay off your loan each month and the lender reports each repayment to the credit bureaus. After you’ve paid off your loan, you get access to your money.
  • Consider a secured credit card. Secured credit cards require a deposit of around $100 to $500 as collateral, which typically determines your credit limit. Each time you make a payment, the credit card company reports it to the credit bureaus. After you’ve built up sufficient credit, you can upgrade to an unsecured card or apply for a personal loan.
  • Pay off your student loans. If you’re still in school and have student loans, get a head start on building your credit score with interest-only repayments. By the time you’re out of school, you’ll have built up a stronger credit history than if you’d deferred your loan until the end of your grace period.

Bottom line

While not impossible, getting a loan without a credit score can be difficult. If you have the time, consider building your credit score before you apply for a loan. Once you’ve built up your credit report a bit, you’ll have more options and might see an easier application process with more favourable terms and rates.

Learn more in our guide to personal loans, where you can also compare top lenders to find the best one for your needs.

Frequently asked questions

Pictures: Shutterstock

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