A credit score ranging from 300 to 850 measures a client’s creditworthiness. The higher their score, the better a borrower seems to potential lenders. As a result, when you request a loan, your lender will evaluate your credit score first. They can use this information to learn about your history of paying bills on time, any outstanding debt, the number and type of loan accounts you have, and other things.
What happens, however, if you’re a beginner with no credit history? Does this suggest that your loan application won’t be approved? The answer is— it is not always easy, but there are alternative ways by which you can still avail of a loan, despite having no previous credit history. Read on to find out how to get a loan if you have no history.
You should contact a credit union, a cooperative where members pool funds to provide credit at lower rates. You will be required to be a union member— membership depends on sharing a characteristic with other members, such as residing in the same community or belonging to the same organisation. These unions are willing to issue loans to borrowers with limited or no credit histories as they rely on your membership in the association to assess your creditworthiness.
You can provide an asset (known as collateral) to avail of the loan. It’s vital to weigh the risk of getting one of these loans since if you can’t pay it back, you can lose the asset you pledged as security. The help to secure the loan could be your home, car, jewellery, or other possessions with a history of holding their value. Now might be a good time to ask: “how much is my house worth?” maybe worthy enough to get a loan! Companies that offer secured loans range from large banks to high-end “asset lenders” to high-street pawnbrokers.
Establish your credibility
When applying for a loan, your income level is crucial. You will likely be approved for a loan if you demonstrate a reliable source of income, are employed by a reputable company and meet the lender’s requirements for qualifying for a personal loan. Additionally, you will need to provide supporting documentation, such as bank records, tax returns, pay stubs, etc., to demonstrate your ability to repay loans.
Obtain a guarantor
With a co-applicant or guarantor, you can apply for a personal loan without having any credit history. The guarantor can be a relative, spouse, or sibling with a solid credit history and consistent income. Your chances of obtaining a loan approved will be easier, as the lender will assess the guarantor’s creditworthiness to approve a loan for you.
You can be qualified for a government loan with no interest if you get benefits. However, you must utilise the money to cover food, rent, and clothing expenses. You must be getting certain benefits to be eligible. You can apply on the Gov.UK website.
A credit card is a financial tool that allows you to borrow money from your bank to cover your necessary bills and pay them back later. Therefore, getting a credit card is the simplest way to start building credit. Obtaining one is simple if you are employed and have a reliable source of income. You can create a good credit history if you use the credit card sensibly for a few months and pay the payment on time.
Private loans at Higher Interest Rates
Asset lenders to high-street pawnbrokers may offer you loans despite no credit history. However, they might charge exuberant interest rates. Therefore, it is only recommended as a last resort if the other alternatives do not work out.
The Bottom Line
Getting a loan if you have no credit history is a challenging task. However, some alternatives can help you get a loan, such as loans via credit unions, collateral assets, proof of steady income, through a guarantor or by availing private loans at higher interest rates. These cards are a great way to start building credit if used diligently.
For further queries, head to Acorn groups’ financial services page. Founded in 1998, they aim to be innovative and offer customised financial solutions for various people and businesses!