A credit score, a three-digit number calculated based on information such as the number of credits, the age of credit, payment history, etc., on your credit report, plays a vital role in determining how much you should be allowed to borrow. Your credit history, which speaks to your financial behaviour, cannot be built unless you take out a loan, and not until you have a credit history, in most cases, can you take out a loan. It is a catch-22 situation. Still, does it mean you cannot qualify for a loan without a credit score?

Emergency loans

Unless you are seeking to take out big loans like mortgages and car loans, a few lenders may sign off on your application, normally aimed at funding small emergency expenses. Get loans for no credit people are mainly small loans used to fund the gap in savings when you come across unforeseen expenses.

Since the lending sum will be paltry, not more than £1,000, your lender will make a lending decision based on your financial details. The criterion is very simple: you should have enough money to cover all your essentials and the loan repayment (interest on top of the principal), as these loans, which can be due in the next 14 days, are paid back in a lump sum.

It is up to a lender if they ask you to submit a copy of your bank statement to understand your spending nature. Payday loans, the most convenient loans to secure when you need money for unforeseen expenses, do not seek any documentation. The decision is subject to the details you provide in the application form. Be honest so as not to avoid falling behind on the due date.

Credit builder loans

While there are some loans that you cannot expect to qualify for unless you build a credit history, a credit builder loan is exclusively aimed at those who have no credit score. These loans, as the name suggests, help build your credit history. If you are struggling to qualify for a loan without a credit rating or if you struggle to get a loan at a competitive interest rate, you should first think of using these loans.

These loans are similar to personal loans that are not backed by any collateral and are paid down in fixed monthly instalments over a period of at least six months. Every time you make a payment, your lender will inform credit reference agencies of your payments which, in turn, build your credit points. However, at the same time, you should bear in mind that missed payments can take a toll on your credit score.

These loans are subject to high-interest rates as you have no way to prove your repaying capacity and assure your lender that you will not make a default. In the lending industry, lenders offset the risk involved in lending you money by charging high-interest rates.

It is always suggested that you do market research before picking up any deals. The criteria to calculate the risk vary between lenders, so the odds are you can still get comparatively lower interest rates.

While small emergency loans, especially payday loans, can be availed of without any credit history, they do not tend to contribute to building your credit history despite timely payments, and that is because the whole payment is repaid once and for all, not give clarity about you sticking to payments in spite of financial ups and downs. It means payday loans close the doors of opportunity to improve your credit score. You will have to hinge on credit builder loans.

Instalment loans

What if you or your family member has to undergo an expensive medical treatment and you do not have enough money to pay for it outright? Is it not fully or partly covered by your medical insurance? You will need an instalment loan, also called a personal loan, paid back over a period of time in fixed instalments, but securing them without a credit history at all is not a cinch.

Suspecting your repayment eligibility or affordability, most lenders will be indisposed to lend to you. If they acquiesce to lend you money, the sum will be very little and interest rates will be higher.

Here are the steps to follow to secure an instalment loan when you do not have a credit history at all:

  • You should apply with a guarantor with a good credit rating. Upon the promise of the guarantor that they will clear the payments in case you make a default, lenders find their risk abated, so chances are you will get the nod.
  • You can also consider applying for these loans with a co-applicant. Chances of getting approval are high when the co-applicant has built a good credit rating.
  • Offer collateral. If it is too urgent to borrow money, security can let you qualify for a loan.
  • Explain the reason why you failed to build your credit history.

Instead of direct contacting a lender, a broker can come in handy in such a scenario, but they will charge a brokerage commission.

Easy ways to build your credit history

If you are struggling to qualify for an instalment loan or getting an affordable credit builder loan, you still have some ways to build your credit rating.

You should open a credit card account. Use it every time you want to make a purchase, provided it does not result in your credit utilisation ratio exceeding 30%, and pay off the balance in full. If you can qualify for an instalment credit card, go for it.

Wrapping up

It can be quite difficult to get a loan without any credit history at all. Mortgages and refinance car loans are out of question of approval if you do not have a credit history. However, you are eligible to apply for a small emergency loan like a payday loan as they are signed off on based on your income only.

Apply for a credit builder loan and open a credit card account to build your credit rating. For long-term loans, you cannot expect to get the green light without a credit report.

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