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Can I Get a Loan With No Credit History?
December 21, 2020●
5 minute read●
Getting a loan with no credit history can seem to be very difficult. Although it might be a little tricky, it’s not entirely impossible. Most times people without credit have to opt for loans with high-interest rates. They’re a number of reasons why you might have no credit history. Here’s what you need to know to get a loan even with no credit history.
Why don’t I have a credit history?
No credit history is different from bad credit history. A bad credit history means that you’ve defaulted with past loans and financial services. Not having a credit history however means that you have not recorded with the credit office. They don’t have enough information about you to give you a credit rating. This can happen due to reasons like:
Not having a traditional credit account
A credit account is used to keep track of your credits and debts. If you do not operate a credit card or have never taken out a loan, you won’t have a history that can be recorded with the credit bureau. This is totally reasonable because you can’t possibly have a history with something you’ve never been involved with.
Having a dormant credit account
The credit office needs to see evidence of activity on your account before generating a score for you. This will be impossible if your credit card is inactive. Ensure there’s continuous activity on your credit account by using your cards occasionally and paying your bills at the right time.
Being a new immigrant
An excellent credit score in another country doesn’t automatically transfer once you move to Australia. You’ll need to open a new credit account in Australia and start building your credit history from scratch.
Why is it difficult to get a loan with no credit?
Banks, lenders and other financial companies make it a duty to check your credit rating and history before deciding to lend you money. Your credit history shows your past credit transactions and will help them decide if you’re a client they’re willing to take in. You can’t blame them for doing this, because they can’t possibly trust everyone that works through their door. They have to fully assess the risk involved in borrowing your money. It’s of course still possible for you to get a loan with no credit but you’ll need to cross some hurdles. This is because they have no records to judge you on and you’re a potential high-risk client. You can decide to take some time to build your credit history before applying or find some ways to improve your chances.
How can I build my credit history?
One of the options you have is to try to build a good credit history from scratch before applying for a loan. But how exactly can you do that?
Identify yourself on utility accounts
Utilities are essential services you have to pay for on a schedule. You can build on this by putting your utility accounts in your own name. Ensure you make these payments promptly and when due so it doesn’t have the reverse effect on your credit history.
Get a postpaid phone plan
If you’re presently on a prepaid phone plan, consider switching to a post-paid plan or getting another phone for this, to build your credit history.
Get a credit card
You can apply for a secured credit card to improve your credit. A secured credit card is also easier to get if you have no credit history because it is secured by a refundable deposit. This refundable deposit will be tapped into if you can’t pay up your credit. However, since you’re just using this means to build your credit history and not to borrow money directly, it is important to take due precautions. Do not miss repayments or accumulate large amounts of debts on your credit card, as this will negatively influence your credit history.
A credit card can help you build a consistent repayment system. This will improve your credit history and give you a good credit rating if you strictly adhere to the terms. Make sure your credit card will report your payments to the national credit office before applying for one. Build your credit each month by paying bills with it timely. Also, make sure that you don’t climb too high on your credit since it’s mainly for the purpose of building a good rating. It is advisable to keep your credit utilization below 30%.
Become an authorized user
An alternative to getting a credit card will be asking a family member to make you an authorized user on their credit card account. You won’t have to pay charges on the card since it’s not yours, but you can use it to improve your credit score by making small purchases and payments with the card. Also, ensure that the main cardholder makes consistent payments for better results. It will also help if the credit account has been open for a long time with no high balance.
How can I prove myself as a safe lending risk without a credit history?
It helps to be able to show how you can afford the loan if you don’t have a credit history. You can either decide on a secured or unsecured loan. The type of loan you pick will depend on your present financial situation. However, you might have better chances with a secured loan, as the lender risk is reduced by your collateral. An unsecured loan might mean higher interest rates. Here are some other ways to prove yourself as a safe client;
Having a full time, steady income job.
It helps to show the lender your income report and proof of a regular income.
Consistent saving habit
Your bank statement will also show your saving and spending habits which can place you to be high risk or not.
A high income with a steady living arrangement.
If you earn a high amount of income and have had no form of mortgage issues in the past, you stand a higher chance.
In summary, it’s very possible to get a loan with no credit history depending on the type of loan you apply for. Building a credit history is also a great option. Ensure to check your credit report consistently to be sure you’re making progress.
Written by Jacaranda Team