Do I Need Credit To Get A Loan?
Do I need credit to get a loan?
Credit or your credit score is something we all inevitably deal with during the course of our lives. Many of us only deal with our credit scores when seeking a loan of some type. A recent poll found that 54% of all Americans and 76% of adults ages 18 to 24 never check their credit scores. [Source: Credit Poll] A good percentage of us may find out that we have no credit or even bad credit when checking our score for the first time. If that’s the case, you’ll be wondering if you need to credit to get a loan. Read below to find out where you stand and what your options are.
Why do I have no credit?
Everyone starts with nothing on their credit report. Only once we have successfully obtain a credit based product will you see a credit score generate. While no credit can still make obtaining a loan challenging, it is generally preferred to bad credit.
When you have no credit, it makes it difficult for a lender to understand whether or not you constitute a good risk. A good risk being one that successfully pays back a loan. They simply don’t know because there is nothing to look at.
If you have nothing on your credit report, the first step is to obtain some sort of financing. Whether its a credit card, auto loan or installment loan; just getting something that will report your payment history will help generate a score.
The easiest way to build a good score is to start things off on the right foot. Make sure that your first credit reporting loan is paid on time and in full. Establishing good payment history is a huge part of your overall credit score. You can learn more about understanding your credit score on our previous post.
Why do I have bad credit?
Bad credit can be recorded in a number of different ways. Depending on how or when you found out about your bad credit, the reasoning can differ greatly.
For instance, if you are inquiring about your credit for the first time and discover that you have a bad score – it may be sign that someone has stolen your identity. If you haven’t used your credit before, then there should simply be no credit. Having negative items on your credit may be a sign that someone has stolen your identity and used it to open accounts in your name.
Identity theft is at an all time high according to a recent report by Javelin Strategy and Research with 16.7 million victims in 2017 alone. If you fall within those statistics, you will want to seek a resolution promptly as it can often take some time. Generally you will want to contact one of the three credit bureaus to get things moving forward. You can learn more about that process and recommended steps from Experian.
Another reason you could have bad credit is from past accounts that were paid late or not at all. Items can remain on your credit report for up to 7 years and sometimes longer. If you simply having been using credit for some time due to past bad experiences, don’t be surprised to find out that those creditors are stilling showing up on your report.
The “perfect world” method of dealing with them is to pay them in full. Obviously, if you have discovered this fact on your search to find an installment loan, then you probably don’t have the funds to repay these old creditors immediately. See if you can contact them and set up payment arrangements to ultimately get them taken care of and remove the blemish from your report.
More importantly, you’ll want to make sure that moving forward you don’t have any other issues. It will likely take some time to rebuild your score and you can’t afford to have anymore late payments or defaults show up. Make sure before you take out your next loan, that you are committed to successfully repaying the debt.
In summary, regardless of why you have credit the moral of the story is to get it repaired as quickly as possible. Outside of correcting past mistakes (whether they are your own or not), the next best thing is to establish some positive payment history to offset the bad. Avoid payday lenders that aren’t a credit reporting establishment and look for direct lenders who will be reporting your payments to the credit bureaus.
The Good News
The good news is that you do not need credit to get a loan. There are hundreds of lenders out there who don’t require any credit to get a loan. Most of these approve loans on the basis of your ability to repay, not past payment history.
Most of these lenders are online installment lenders. The few who will have a local branch to visit will generally be payday lenders. These you will generally want to avoid due to the high cost of fees.
If you find out that you happen to have bad credit instead of no credit, you will generally still have access to loans through the same type of lenders. Whether you are trying to get a bad credit loan or a no credit loan, they both function generally the same. That is in the form of an installment loan, where you will pay back a set payment over a period of time and at a set interest rate.
These online installment loans will generally be your best when you limited or poor credit. They will have the least hurdles to obtaining an approval. Be aware that there are direct lenders and indirect lenders for online installment loans.
Other, Less Likely Options
If the online lending options aren’t doing it for you, there are still other potential options. Be aware however that these will be harder to actually secure over an online loan.
Credit Unions are an option, assuming you have on in your area that you can gain membership with. You can research local credit unions here. These institutions are generally smaller than a traditional bank or lender and have more flexible underwriting guidelines. If you simply haven’t taken out any credit and don’t have a score, they may be willing to help you build your credit. However, if you have bad credit due to negative items on your credit history – it may be harder to win them over.
Family or friends may be willing to throw you a bone if you can’t get any traditional loans. Instead of going to a lender whose sole purpose to make money lending to you, a family member might be willing to let you borrow the money you need a no or low cost. This option does assume that your family both has the money to lend you and the willingness to do so. After all if you’re having trouble obtaining a loan elsewhere, they may not be so willing to lend their own hard earned funds.
A Co-signer is another potential route to go. A co-signer is someone who generally has better credit and/or income than you and agrees to be liable for the debt you are applying for. This will often both increase your chances for approval and lower the cost of the loan – assuming again that they are more well qualified than yourself. If a family member who doesn’t have the money to lend you but does have the willingness to do so, this may be an option for you. Like before, if they didn’t feel comfortable lending you the money themselves, they may not be comfortable agreeing to be attached to your debt. Should you not pay the loan back on time, it could affect their credit as well.
The Not So Good News
The downside of the online installment options is that they tend to be more expensive. Being that they don’t require a credit score, they are often priced higher as the lender is taking fewer steps to minimize their risk. In other words, they charge a higher price to offset the higher likelihood that someone with no or bad credit might default on the loan.
Another thing you’ll want to be aware of is the reputation for these lenders. There are quite a few that you will want to avoid. The only way you’ll be able to do so is by researching companies before taking out a loan. Check out various review sites as well as, Facebook and Google. There are a lot of scams and fraud out there that you don’t want to be apart of. Look for alternative lenders with a good reputation like Credit Fair-E. Not only are they reputable, but their terms are much more affordable than most.
Tying It All Together
Your credit score is a very important number that you’ll want to keep a close eye on. There are plenty of sites out there like Credit Karma that let you track your score for free. Your credit score will not only impact your ability to borrow money but also the cost to do so.
If you haven’t used credit before, it generally helps to establish a score in advance of seeking the loan you need. The same goes for fixing a bad credit score before searching for the next loan. Sometimes however, you’re new loan may contribute to building your score if you’ve selected the right one.There are options out there for people with no credit. There are also bad credit loans and as we discussed, sometimes they are one in the same. If you have a financial emergency and need a loan, do what you have to do to avoid another emergency. If you’re having trouble deciding what to do, use this guide on how to cope with a financial emergency.