You hear a lot of talk from financial advisers and in the press about what to do if you have a bad credit score. There is also plenty of praise for those with a great credit score. What happens, however, if you have no score at all?
This is more common than you may think, too. Young adults will start their financial life with no credit history and must build it from scratch. Some people may focus on the advice to pay everything cash and thus have no established history with credit either. Many widows and widowers, and freshly divorced people, have relied purely on their spouse’s access to credit and never built up their own credit history.
If this is you, what can you do? How do you get loans without the credit history needed to…well, get loans? This article is for you!
Can You Get a Loan With No Credit Score?
The short answer is yes, you can get a loan even if you don’t have a credit score. Depending on your specific risk profile and reasons for having no credit score, you may even look like a better option to the lender than someone with a poor score. They don’t know much about how you act with credit and you may be low risk, whereas they know that person is pretty bad with it.
However, traditional lending institutions rely heavily on credit scores to assess an individual’s creditworthiness. So you will need to prove yourself as a low risk to them in other ways. It is also smart to start small. No one is just going to hand you a R1,500,000 mortgage with no credit history! You should be able to open a line of store credit, a cell phone contract, or a credit card with a low balance pretty easily, though. These will help you build up your credit history so you can access more over time.
How to Get a Loan Without a Credit Score
The absence of a credit score doesn’t have to be a roadblock when you are looking for credit. Many lenders, both traditional banks and alternative financial institutions, offer loans that consider factors beyond your credit score. Start by researching lenders who specialize in loans for individuals without established credit histories. Remember, you don’t have ‘bad debt’. You just have no credit history yet. Low-stakes credit, smaller secured loans, and small unsecured loan amounts are often more flexible in their eligibility criteria. They will assess things like your salary, situation, and demographics to decide how risky a bet you are.
Sometimes, you can have someone with an established credit history cosign a loan with you. This gives the lender surety that someone with a good track record can be held responsible if you default, and will often appeal to lenders. Alternatively, you can take our earlier advice and start with really small, easy-to-obtain loans with low stakes, like store charge cards and smaller credit card balances, to start building your credit history before you get to the ‘serious’ things like car and house loans.
What is the Easiest Loan to be Approved For?
If you have no credit history, having a cosigner that does is often the easiest way to get approved. If that isn’t an option, look out for small loan options with low stakes, like store credit and prepaid credit cards, to get started.
How Can I Get Money Urgently?
You may see people talk about payday loans and no-credit-check loans as ‘easy’ to get approval for. Yes, they are easy to get. Because they are coming from lenders with very little obligation to be responsible, unlike reputable financial institutions. They also come with predatory practices and sky-high interest rates. Even if you need to get money urgently, this isn’t the way to do it. You will soon find yourself in a deep hole. If you are forced to use one of these options in severe need, be very careful about who you use and the terms you agree to, and do your best to look out for your future as well as the now.
It’s also smart to see if you can access fast money without a loan. Some investment platforms will let you borrow against shares you own, for example. While taking money from your retirement isn’t great, the new ‘two-pots’ pension system in South Africa may give you some financial leverage. Possibly you can take a private loan from your family, friends, or your workplace. Or possibly you have something you can sell or pawn fast.
It is hard to think of the future when you have an emergency right now. But if getting money urgently will destroy your financial future and leave you unable to recover or locked in a predatory loan cycle, the cost is too heavy.
What Do You Need to Qualify for a Loan at Capitec?
Capitec offers banking customers up to R500,000 in fixed installment loans. You can choose to get the lowest interest rate possible, or the lowest monthly installment. To qualify, you will need to earn a formal salary from a recognized company. They can be very difficult with salaries from SMBs and smaller employers and do not offer loans to contractors, freelancers, or entrepreneurs. You will need your ID, latest salary slip, and 3 months bank statements to apply. It can be done in-branch or on your banking app.
How to Borrow Money with Bad Credit?
If you find yourself grappling with bad credit, avenues still exist for borrowing money. Consider reputable, registered, and recognized lenders specializing in bad credit loans, where the eligibility criteria focus on other financial aspects. Be very careful about evaluating these lenders. Specializing in bad credit is a legitimate thing, but predatory loan sharks often hide behind the same promises. Secured loans, backed by collateral, can also be more accessible for those with tarnished credit histories. Finding a cosigner with a better credit history will also help. Last, but certainly not least, taking even small steps to rehabilitate your credit will slowly but surely help you access your own credit at more favorable rates.
Getting a loan without a credit score is more difficult, but it isn’t impossible. We hope these tips help you.
