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How can people with no credit history or score get a personal loan approved?
Young adults must begin somewhere. Someone must be approving first-time borrowers. Otherwise, nobody would ever be able to establish a consumer report or score.
The secret to getting a personal loan with no credit history is simple. Work with specialty online lenders and shine in other areas to balance out the equation. It’s easy as 1-2-3!
- Find lenders that do not perform traditional credit checks
- Demonstrate that you can afford to repay the lender
- Permit automatic repayment from your checking account
Qualifying for Loans with No Credit History
Qualifying for a personal loan is possible for people with no credit history or score. Young people without a record of borrowing money and paying it back are often great customers. They just have not had the chance to prove it yet!
These are the keys to success.
- Begin with a small principal amount
- Verify your identity
- Driver’s license number
- Social security number
- Input your bank routing number and account number
- 3rd level of identity verification
- Consent to auto withdrawals
- Demonstrate a stable work history and sufficient income
- Time employed
- Employer name
- Employer phone number
Starter Loans Online
Starter loans online can help people with no credit history to build a record. Everyone must begin somewhere. Embark with a small principal amount with short repayment terms to establish a positive record – something you can easily afford right now.
- Request a starter loan from the bank where you already have a checking and savings account first. Most major retail banks report all borrowing activity to each of the big-three consumer reporting agencies (Equifax, Experian, and TransUnion). Trade lines reported by banks are best for building credit.
- Request a starter loan from an online company if the bank turns you down. Many banks do not support small principal amounts. Verify that the online lender reports a positive history to all three major bureaus to build a favorable record.
No Credit Check
No credit check lenders can help you qualify for a personal loan if you have no history appearing on your report from one of the big-three bureaus: Equifax, Experian, or TransUnion. Many online companies can approve a request without a traditional credit check by focusing more on income, using alternative report sources, and requiring banking information.
- Income-based underwriting is part of every lender’s criteria. Banks want to see that you can afford the projected monthly payments in addition to your other regular living expenses.
- Bank account and routing numbers verify that you are a real person and not a fraud. Having a checking account in your name also enables auto drafting, which ensures prompt repayment of the obligation.
- Alternative reporting services use non-traditional data to predict your future financial behavior.
Getting a loan without a credit check is more myth than reality. Most companies will not lend money without some form of external validation of your financial footprint.
Getting a personal loan with no credit history and no cosigner means overcoming the lack of a reputable guarantor. Cosigners often have an established record of borrowing money plus a reliable income. They agree to make payments if you cannot, which reduces default risk.
People with no credit history and no cosigner must compensate with a steady income and employment verification. The lender will look more favorable at your request if you can show both of these qualifiers.
- Your regular earnings must cover the projected payments with ease. The lender will calculate a debt-to-income ratio (DTI) during the underwriting phase. Keep the DTI as low as possible.
- Provide complete information about your employer (name, address, phone number) so that the lender can verify employment (the source of income needed to repay the obligation).
Beginners without a cosigner can also take advantage of specialty credit scores. For example, the UltraFICO score uses checking, savings, and money market account information to possibly boost ratings for people without traditional data on their record.
18 Year Olds
18-years old young adults with no credit history routinely qualify for unsecured loans without a credit check, cosigner, or income. The federal government approves student loans for any 18-year-old applicant whose family completes the Free Application for Federal Student Aid (FAFSA) to attend college.
Complete the FAFSA form during the senior year of high school and enjoy incredible borrowing power.
No Credit Check
18-year-olds with little credit history can borrow up to a fixed amount ($5,500 or $9,500 see below) for the first year of undergraduate studies. The FAFSA form does not require or involve pulling a file or score from a consumer-reporting agency.
No Income or Employment
18-year-olds with no job or income also automatically qualify for these federal loans. Even young adults who are pursuing low demand majors with reduced earning potential meet the standard. Of course, the reverse is also true. If a for-profit technical school over promises a high-paying career, expect the government to shut them down.
18-year-olds with no cosigner or parental support qualify for the most substantial loan amount. Parents do not have to act as guarantors as they would with private banks. The government logic works in reverse. The limit grows when you do not receive financial support from a parent.
- Dependents – parents provide financial support
- Independents – no parental financial support
Remember this the next time you vote. Only elected officials spending other people’s money would lend such large sums to inexperienced young adults under these parameters. Is it any wonder why this area is such a financial mess?
First-Time Loan Options
First-time loan options do exist. How else would people become second or third-time borrowers if this were not true? Banks want to approve applicants to make money on fees and interest. They are in business to lend money.
However, as a first-time borrower, you may have to go the extra mile or pick the right type of product – given your situation.
First-time personal loans are sometimes the most difficult to obtain because of the higher risk to lenders. Personal loans are unsecured and have more extended repayment periods than a cash advance. Both factors make banks nervous.
- Unsecured personal loans do not have collateral that the bank can repossess in the event of default. The individual’s signature acts as a promise to repay the funds on time and according to terms. A signature carries little weight without a borrowing history backing it up.
- Personal loans often feature installment payments spread out over time (6 months, 1 year, 2 years, or 3 years). Risks to the lender increase the further out in time that payments go. Time adds to the uncertainty.
Therefore, keep your first-time personal loan request small and short. Pay on time and according to terms to establish a positive record. Then watch your ability to borrow larger sums improve over time as your score improves.
First-time auto loans are another option for people with insufficient credit history. With this alternative, you pledge the car as collateral. The extra security counterbalances the lack of borrowing credentials.
Finance companies suffer lower losses when they can repossess an automobile in the event of default. Since they hold the title, they can take possession and sell the vehicle at auction to recoup some of the money.
Beginners can use a car as collateral to boost approval odds in two ways.
- Buy a new or used car via dealer finance programs
- Borrow against the title on an existing automobile
Making a large down payment also improves qualifications on new and used car purchases.
First-time payday loans are an option for people with no credit history. With this alternative, the very short repayment timeframe and the security of an auto draft make up for the lack of borrowing credentials.
- Short repayment timeframes are less risky to the lender. You must repay the payday cash advance in one or two weeks, which minimizes uncertainty. The timing coincides with your employer’s payroll cycle.
- The collateral of your next paycheck also reduces risk. The payday company obtains the right to debit your checking account automatically just after your employer cuts payroll.
However, this does not mean that payday loans are a good option for all first-timers.
- Fees add up very quickly if you cannot repay the obligation in full. Those who rollover payday loans often pay sky-high annual interest rates use with caution.
- Many finance companies do not report positive activity to the consumer bureaus. They only report the negative. Therefore, this is not a good starter option to establish a record of on-time payment.