Consumers with no credit history or credit score face similar challenges as those with a poor credit history or bad credit score. Many lenders view borrowers with no credit history as risky and are reluctant to issue a loan approval to these applicants.

Fortunately, several strategies exist for establishing credit and developing an excellent credit history.

What Does It Mean to Have No Credit?

When a borrower applies for financing such as a car loan, small business loan, or credit card, the bank, credit union, or other types of lender typically will perform a credit check and assess the borrower’s creditworthiness before denying or approving the loan offer.

A credit check involves reviewing the data within a consumer’s credit report, which is a summary of any such account activity. Equifax, Experian, and TransUnion, the three major credit bureaus, receive and compile all the information that composes your credit report.

One key indicator of whether someone has good credit or bad credit is their credit score. A credit score is a three-digit number ranging from 300 to 850 calculated based on the information in your credit report.

The Fair Isaac Corporation (FICO) is the industry leader that created and continues developing a universal credit model or formula used for calculating credit scores. The following summary outlines the approximate credit score ranges:

• 300 to 579: Poor
• 580 to 669: Fair
• 670 to 739: Good
• 740 to 799: Very Good
• 800 to 850: Excellent

Many lenders who perform a credit check will base their loan approval or denial decisions exclusively on a consumer’s credit score. According to Experian, those with no credit history simply have no credit score—not zero, 300, etc.

Some of the consumers that often lack any credit history include young adults, recent immigrants, or those who have never had a personal loan, auto loan, credit card, or other loan option.

Is It Possible to Get a Loan With No Credit?

According to the Consumer Financial Protection Bureau (CFPB), more than 20 million Americans lack any credit history, which they refer to as “credit invisible.” 

Further, a slightly smaller number of consumers have a credit history that is insufficient or “thin” with no recent activity.

Those with no credit history will typically struggle to obtain a loan. In many cases, these individuals might only qualify for loans with hefty interest rates, exorbitant fees, or other undesirable loan terms.

Aside from being denied loans or only qualifying for those with unfavorable conditions, these individuals are at a disadvantage in other important situations where they are subject to a credit check.

For example, car insurance companies in many states perform credit checks and those with bad credit generally pay higher premiums. Other potentially adverse circumstances include difficulty leasing an apartment or obtaining employment.

In many cases, those with no credit history may have more success qualifying for secured loans rather than unsecured loans. A secured loan is one used for financing a specific purchase, which is an asset that represents a form of collateral.

For example, a car loan is a common type of secured loan. Here, the lender typically assumes less risk because if the borrower becomes delinquent during the repayment term, the lender may legally repossess the vehicle (collateral) as a means of offsetting losses.

Those struggling with obtaining a loan might also consider applying for a secured credit card as a means of establishing credit. Unlike a traditional unsecured credit card, consumers must make an initial security deposit in order to obtain approval.

How To Get a Loan With No Credit

Talk to Your Bank or Credit Union

While many large, national, or regional banks often adhere to fixed corporate policies when making lending decisions, smaller financial institutions might have greater discretionary power or flexibility. Start by inquiring at any bank where you have an active account.

Also consider joining a local credit union. A credit union is a financial institution that is often a not-for-profit entity, where the account holders or members have some degree of ownership.

Most credit unions offer very competitive rates and low fees and might have less-stringent credit requirements

Find a Cosigner

Do you have a close friend or family member that might act as a cosigner? Here, presumably, an individual with reasonably good credit will assume responsibility for the debt obligation in case the loan becomes delinquent.

Depending on the lender, a cosigner represents a potentially viable means of obtaining loan approval and might allow you access to more favorable interest rates and other terms.

Borrow Money From Friends and Family

In many cases, a consumer finds themselves seeking a loan out of necessity. For example, the need for a major car repair or another unforeseen calamity.

As an alternative to a personal loan from a financial institution, you might consider asking friends or family members.

Collateral

Most types of personal loans are unsecured loans, meaning that no form of collateral, such as an asset like a car or a house, is required to “secure” the loan. Some lenders will consider issuing personal loans to borrowers if they have a form of collateral.

Some examples of possible forms of collateral include a car, boat, jewelry, or other recoverable items of value that lessens the lender’s risk. Use caution when entering these types of lending agreements, as some unscrupulous characters operate in this realm.

Personal Loans for Bad Credit

Unlike a car or home loan that finances a specific purchase, borrowers may use personal loans for various purposes. Today, personal loans are increasingly available from online lenders. However, banks, credit unions, and other local financial institutions offer them also.

Personal loans are either secured or unsecured cash loans offered with repayment terms that usually range from 12 to 60 months. The best personal loans feature reasonable interest rates and fees and have no up-front charges such as origination fees.

A bad credit personal loan is an option for those with a poor credit history—but they might be costly as indicated in the credit score statistics that follow.

Personal Loan Rate Estimates Based on Credit Score (2024)

Credit Score Range	Average Interest Rate
720 to 850	10.50% to 12.30%
690 to 719	13.00% to 15.00%
630 to 689	17.50% to 19.50%
300 to 629	27.50% to 31.00%

Source: Bankrate’s Personal Loan Series

Types of Loans to Avoid

Payday Loans

The U.S. payday loan industry emerged in the 1990s as a short-term credit option for employed consumers living paycheck to paycheck. Typically, consumers repay by writing a post-dated check or authorizing an electronic debit from their checking account on their next payday.

The current average loan amount is roughly $375 and interest rates typically exceed 391% in states without restrictions. Critics cited how borrowers are often unable to fully repay a current loan and enter a subsequent loan agreement, which develops into an ongoing cycle.

Some states have completely outlawed payday loans and others are in the process of managing them better. A recent update from the National Conference of State Legislatures (NCSL) showed that 21 states had pending legislative activity related to the payday lending industry.

Title Loans

Borrowers obtain vehicle title loans using their cars as collateral. The borrower retains possession of their vehicle during the term of the loan unless they fall behind on the repayment schedule and the car becomes subject to repossession.

Title loans are similar to the traditional lending arrangements found in local retail pawn shops where the borrower uses jewelry, electronics, or similar items of value as collateral.

The average loan amount is approximately $1,000 and usually carries steep interest rates and fees. A credit check is not typically a requirement, as borrowers must simply have a clear title indicating they have a fully paid-off vehicle.

How to Build Your Credit When You Have None

Get a Credit Builder Loan

Credit builder loans provide opportunities for establishing or improving credit. One viable option offered by CreditStrong is the Instal account, which is a type of installment loan that deposits the loan funds into a savings account for the duration of the term.

Here, the new credit account involves making a single, monthly payment toward the loan balance, which is reported to the three major credit bureaus over the term of the loan. During this time, borrowers maintain 24/7 access for tracking progress and their FICO score.

After making all the payments, the initially deposited funds from the savings account become available.

This “build and save” strategy is among several innovative financial solutions offered by CreditStrong, which is a division of Austin Capital Bank in Texas. This institution was recently acknowledged on the Inc. 5000 list of emerging privately held organizations in the country.

Pay Your Bills on Time

The FICO credit scoring model focuses on five primary categories that form your overall credit profile. The factors FICO considers include payment history (35%), amount of debt (30%), age of credit history (15%), new credit accounts (10%), and overall credit mix (10%).

Constituting approximately 35% of your score, payment history is the factor with the largest potential impact on your credit. Lenders typically view those with a proven track record of making timely payments as most likely to continue doing so in the future.

Therefore, consumers that remain diligent month after month should expect their credit scores to steadily improve. This consistency is commonly achieved by those who avoid excessive spending and approach their finances in an organized manner.

Consider using today’s technology for ensuring you remain on track by setting up payment reminders or alerts or using the automated monthly electronic payment options typically available with most credit cards and other financial accounts. 

Pay Down High Credit Card Balances

Paying down higher balances on credit cards and other types of revolving credit accounts can improve your credit score. Keep in mind that simply carrying a substantial amount of debt in itself will not necessarily have a large adverse impact on your overall credit.

The amount of debt that a consumer has is largely viewed in relation to a couple of other factors. For example, while having monthly debt obligations totaling $1,000 and a monthly income of $2,000 seems excessive, it is much less concerning with $6,000 in monthly income.

For the purposes of calculating your FICO score, a major consideration is your credit utilization rate or ratio. This equates to the amount of current revolving (credit card) debt in comparison to the maximum available credit, which is expressed as a percentage as illustrated below:

Credit utilization rate (%) = Total of current credit card balances / Total of maximum credit card limits

As a general rule, keeping your credit utilization rate below 30% is recommended.

Keep the Accounts That You Already Have

Keeping existing credit card accounts open is often beneficial to your FICO score in both the amounts owed (30%) category and the age of credit history (15%) category and generally applies regardless of whether you have a balance on a credit card account or not.

The first involves the aforementioned credit utilization rate, which should not exceed 30%. Consider the following example:

You have two credit cards, Card A with a $1,000 balance and a $2,000 limit, and Card B with a zero balance and a $2,000 limit. Here, you have a balance of $1,000 and a total limit of $4,000, which results in a credit utilization rate of 25%.

Next, assume you close the Card B account because you no longer regularly use it. The calculation still involves a $1,000 balance; however, the total limit is now $2,000, which creates a spike in your credit utilization rate to 50%.

The other consideration applies to your length of credit history. FICO considers the age of your oldest account, the average age across all accounts, and other similar factors.

Assume you have only two credit accounts, Card A which you opened one year ago, and Card B that you opened five years ago. Closing (canceling) Card B leaves you with a single active account that only spans one year. 

Dispute Incorrect Items on Your Credit Report

Did you know that data suggests that up to 34% of Americans have some type of error on their credit report?  In some of these instances, erroneous information might have an adverse impact on your credit.

American consumers receive a free copy of their credit report each year (see AnnualCreditReport.com). Taking the time to review the details might uncover mistakes that exist in your credit history.

Today, the three major credit bureaus, Equifax, Experian, and TransUnion, have easy-to-use applications on their websites that allow for efficiently submitting a dispute regarding potentially erroneous credit report entries. 

Keep in mind that you should submit documentation that supports your dispute. Regardless of whether you submit a dispute online or through the mail, the credit bureaus have an obligation to investigate within 30 days.

Monitor Your Credit Score

Consider regularly monitoring your credit score. First, this provides you insight or clarity regarding how your credit-related activities actually influence your credit score—positively or negatively.

Regularly checking your credit score might limit the damage caused by possible fraudulent activity involving your identity. For example, you might notice an abrupt decline in your credit score and discover that someone applied for three different new credit accounts in your name.  

Another reason for monitoring your credit score is for tracking your progress and goals. When taking steps to improve your credit, seeing the improvement in your credit score might keep you motivated and help you maintain positive momentum. 

Obtaining a loan without having a credit history may pose challenges; however, adopting several of these best practices should lead to positive results.   

CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.

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