How to get approved for a personal loan without credit history

A loan could save the day when you have a need for cash. But trying to get one can make you feel like you’re in a house of mirrors—you need good credit to get a loan (whether it's a personal loan, a home equity loan, or another kind), but you need loans and other credit accounts to build good credit. 

A lot of people have limited or no credit history. Maybe you're young and new to credit or you're older but simply haven't needed to borrow money. A lack of credit isn't the end of the world. 

Can you get a personal loan with no credit history? Yes, you have options. From alternative data lenders to co-signers to secured loans, we'll walk you through the different paths you could have available.

Can you get approved for a personal loan without credit history?

Yes, it's possible to get approved for personal loans with no credit history. While lenders typically use credit scores as a key factor for approval, some may consider alternative data. Alternative data includes your income, employment history, savings, and debt, all of which can offer clues about how well you manage your finances.

Except for debts, like loans or credit cards, most of these factors don't appear on your credit history. They won't help you build a credit score, either. But they could shed some light on who you are in a financial sense, which could help a lender decide whether to give you a loan or not. 

Lenders that accept no-credit borrowers may offer smaller loan amounts or charge higher interest rates, but you could still qualify. 

There's a reason for both: lenders use credit scores to gauge risk. Without a credit score to go on, the lender assumes more risk when making a loan. So, the lender might let you borrow a lower amount or charge you more interest to offset the risk that you don't repay the loan in full. 

Option 1: Apply with lenders that use alternative data

If you're interested in how to get approved for a personal loan without credit history, your choice of lender matters. Lenders that use alternative data could be a good place to start, as they may consider factors other than credit scores that could paint a positive picture of your financial situation. 

More factors may be better, as they could offer you more opportunities to show that you have what it takes to repay a loan on time. Look for alternative lenders that consider:

• Income, and how that income has trended over time

• Employment history, including the length of time you've been at your job and the industry you're in

• Bank balances and cash flow, or how money moves in and out of your account

• Rent and utility payment history

Prequalify to estimate your approval chances

One way to see if you might be approved is to check for prequalification. This uses a soft credit pull instead of a hard pull. Hard pulls show up on credit reports and they could knock a few points off your credit scores. Soft pulls don't affect your credit at all.

Be wary of lenders offering no-credit-required loans. Since they don't check your credit, these lenders typically assume you're high risk from the start. This means much higher rates and fees. At minimum, read the fine print and check out reviews for the lender. Only use lenders that are transparent about what you can borrow, how they qualify you, and what they charge in interest or fees. 

Option 2: Apply with a co-signer or co-borrower

Getting a personal loan with a co-signer or co-borrower could make it easier to get approved. If the co-signer or co-borrower has a strong credit history, a lender might be persuaded to offer you a loan at a lower interest rate. 

So what's the difference between them? Here's a rundown:

• A co-signer for a personal loan is someone who allows a lender to check their credit and agrees to share legal responsibility for the debt. They guarantee to the lender that if you don't pay the loan back, they will. Co-signers have no right to the loan proceeds.

• A co-borrower takes the loan out with you and helps with payments from day one. Co-borrowers have equal rights to the loan funds.

There are two things to know about co-signers and co-borrowers for personal loans. First, they should have good or excellent credit for you to have the highest approval odds. A solid score on your co-signer's part could offset your lack of credit or even poor credit. Otherwise, having someone else's name on the loan might not help your case that much. 

Second, and maybe more important, they need to understand the risks and responsibilities. If you don't pay the loan, the lender could try to collect the debt from your co-signer or co-borrower. You could both end up with damaged credit if the lender reports late or missed payments to the credit bureaus. In the end, you could hurt your relationship if something goes wrong. 

Option 3: Consider a secured personal loan

Secured loans are tied to collateral, which is a finance term for something of value that you own that backs up the loan. For example, a mortgage is secured by your home. If you fail to repay the loan, the lender could keep your collateral. 

Savings accounts, CDs, or a car you own could all be used as collateral for a secured personal loan. These loans are designed for borrowers with limited or no credit history, and they could offer some advantages:

• Secured loans may be easier to get approved for, since your collateral reduces risk for the lender. 

• Rates for secured loans may be lower than unsecured no-credit loans, which could save you money. 

• You may be able to get a larger loan, based on the value of your collateral. 

If you're interested in a secured no-credit personal loan, think carefully about what you want to pledge. For example, if you rely on your car to get to and from work it could be a gamble to use it as collateral. Failure to repay the loan for any reason could leave you without a vehicle. 

You may want to skip secured loans altogether if you don't have anything to use as collateral that you wouldn't want to risk losing. 

Option 4: Build eligibility using income and financial stability

A steady income could convince a lender that you can repay a personal loan with no credit history. Lenders want to know that you have the money coming in to make loan payments consistently, month after month. Here are some ways to improve your approval odds for a personal loan with no credit, using your income: 

• Organize documents to show your income stability (e.g., pay stubs, W-2s, tax returns, or bank statements)

• Point out positive income trends, such as consistent paychecks for an extended time period or a salary that's risen for several years in a row

• Pay down some of your debt if you have any to improve your debt-to-income (DTI) ratio

Your DTI measures how much of your gross pay goes to debt repayment and housing each month. The formula looks like this:

(Total monthly debt payments + housing / Gross monthly pay) x 100 = DTI

So, if you pay $1,000 a month to debt and housing and your gross pay is $5,000, your DTI is 20%. 

A good DTI for a personal loan is usually 43% or less, but you might want that number to be even lower if you're trying to get approved for a loan with no credit. Below 36% would be ideal for most lenders.

You could also try for a smaller loan to start with. For example, instead of a $10,000 loan you might apply for $1,000 instead. If you make all the payments on time, that could help your credit score and open the door to approval for a larger loan the next time you apply. 

What lenders look for when you have no credit history

Lenders want to work with dependable borrowers who can be relied on to make their loan payments. When you have no credit history, the rest of your finances come under greater scrutiny. Lenders want consistency when it comes to things like your income, work history, and how you pay bills. 

You might be a more attractive candidate for a no-credit loan if you:

• Have worked at the same job for several years

• Can show that your income is stable or increases year over year

• Don't have a lot of debt

• Have a little extra change stashed away in a bank account

• Have a positive banking history

• Pay your rent and utility bills on time

All of these factors could add up to help fill the gap when you don't have a credit score, good or bad, to show to a lender. 

Why personal loan applications get denied with no credit history

Lenders may deny a personal loan with no credit history for various reasons. The big thing is that without a positive credit history to show you pay your debts on time, the lender could assume you're a high-risk borrower.

Or, you could be denied for reasons that don't have anything to do with your lack of credit history at all. For example, you could be denied if your income is too inconsistent, your DTI is too high, or the information you provided about your finances can't be verified.

The lender should send you an adverse action notice in the mail that tells you why you were denied. If there's a mistake somewhere, you could fix it and ask the lender to reconsider. This may not work, but it could be worth a try if you can fix a mistake that strengthens your application.

How to increase your approval odds

If you feel frustrated or confused about how to get approved for a personal loan with no credit, you just need a plan to improve your chances. Some of the most effective ways to raise your approval odds for a no-credit personal loan include adding a co-signer to the application, applying for a smaller loan, and using lenders that rely on alternative data.

You could also explore ways to build your credit. Here are a few options you could try:

• Credit builder loans. A credit builder loan lets you build credit by making payments to a small loan. However, there's a twist. The loan proceeds are held in a secure account that may or may not earn interest. Once you make all the loan payments, the funds are released to you. And you get to walk away with the benefit of having a paid-off loan on your credit history. (Tip: Look for credit builder loans that give you money upfront.)

• Secured credit cards. Secured credit cards give you access to a line of credit, typically in exchange for a small cash deposit. The deposit usually serves as your credit line. You can make purchases up to your credit limit, then pay it in full each month. As you make on-time payments, you add positive payment history to your credit profile. Some issuers will give you the deposit back and convert your account to an unsecured card after your credit score grows. 

• Authorized user status. An authorized user is someone who can use another person's credit card, but isn't responsible for the debt. Authorized user status could kickstart your credit-building efforts since the account history shows up on your credit reports. As long as the primary cardholder has good credit, your score should lift. 

Limited or no credit history could be an obstacle to getting a loan but you're not stuck. There are ways to get approved for a personal loan without credit history; you may just have to cast the net a little wider. In the meantime, you can take steps to build your credit profile so you have more options for loans the next time you need to borrow. 

Ready to start exploring your options? Check if you qualify for a loan from Achieve Personal Loans with no impact to your credit.