While getting a credit card without a credit history is relatively straightforward, obtaining a loan is not so easy. It’s common knowledge that banks and other financial institutions will check your credit history to see if lending money to you is a smart move – but what if you don’t have one?
It’s not out of the question for someone to reach a point in their life where they need a home loan, car loan, or personal loan, but they haven’t held any previous loans or lines of credit. It’s entirely possible for someone to be well into their thirties without having a credit history of repaying a post-paid phone plan, a credit card, or a car loan or personal loan.
If you’ve stuck to debit and prepaid mobile plans until now, although you may have been living a financially prudent life, you might run into trouble when it comes time to apply for your first loan. We can’t give personal advice, but we can point to some general tips for building a credit history or applying for a loan without any credit history.
Why do I need a credit history to get a loan?
Lenders use your credit history to assess how much of a financial risk it is to lend you money, based on things like:
- Whether you make all your required monthly repayments on time
- What types of credit or loans you have repaid successfully
The better your credit history, the less of a borrowing risk you are – and vice versa.
In the eyes of most lenders, a lack of any credit history is not as bad as having a bad credit history, but it means they will view you as an unknown risk. A bad credit history at least gives the lender an idea of your financial habits; not having one at all presents you as a complete wildcard, which is not a good look. No credit history means lenders may err on the side of caution and decide not to lend to you.
The easiest solution to this problem is simply to acquire a positive credit history by obtaining a credit card and repaying the balance in full every month. Naturally, we’re not suggesting anyone should apply for a credit card if they don’t need one – but if you need a home loan, you may need to build up a positive credit history first.
Let’s look at some things that can help or hurt your chances when applying for a loan if you don’t have a credit history. These will generally apply across the board whether you’re looking for a home loan, personal loan, or car loan.
Give it a couple of years if you can
If you’re at a point in your life where you want to take out a loan, could you afford to wait a few years? It may be a prudent move to put the brakes on your borrowing plans and start building a positive credit history.
If someone took out a credit card, and used it sensibly and frequently over the next few years, repaying the balance in full every month, they would build for themselves a pretty solid credit history.
If you can’t wait or don’t want to wait, then consider the following tips for applying for a loan without a solid credit history.
Prove you’re a good candidate
If you don’t have any sort of credit history but you still want a loan, you’ll need to be able to prove to your lender of choice that you’re a safe bet for repaying that loan. You can do this by demonstrating most or all of the following:
- A full-time, secure job with regular income
- High enough income to make the repayments on the loan you want
- No history (with your debit card) of dishonour fees, late payments on bills, or failed payments
- Evidence of saving money each month (“financial prudence”)
If you had evidence of all of those things, there would be a better chance of getting a loan. Try our Mortgage Repayments Calculator or Personal Loan Repayments Calculator if you’re not sure what the repayments would be on the type of loan you’re considering.
Keep in mind that when it comes to home loans specifically, you may still encounter issues depending on the size of your deposit and the LVR of your desired loan.
Aim for a secured loan
If you’re looking for a personal loan (for a holiday, wedding, or other purpose), think about what assets you own that you can offer as security for the loan you’re seeking. This piece of advice applies more to personal loans, because a home loan or car loan is usually secured by the home or car you are buying.
Not only is a secured loan a more attractive prospect for your lender of choice, but our research in late 2016 showed that you’d pay about 3.78% p.a. less in interest on a secured loan compared to an unsecured loan. Over the life of say, a 10-year loan, that’s not small change! Here are some other bits of advice on what to look for when searching for a personal loan.
We’ve shown you that it’s not impossible to get a loan without a credit history. However, what should be emphasised is that some loan types and sizes may still be out of your reach, simply due to responsible lending standards for financial prudence by banks. This makes it important that you do your research and figure out a loan type and size that you have a chance of being approved for.
Also note that even if you’re a perfect candidate aside from the whole ‘no credit history’ hiccup, some lenders may still only offer you a bad credit home loan, which tend to come with higher interest rates and subsequently higher repayments.
At the end of the day, whether or not you’ll end up being approved for the loan you’re after will depend almost entirely on your personal details and circumstances. That being said, if you heed some of the points we’ve mentioned, you may have a better chance of landing that loan.
For further information on variable home loan products available for investing, the below comparison table has been formulated with direct links to the providers website. These have been sorted by our star ratings (highest to lowest). Please note that this table features products that are based on a loan amount of $450,000 for a property in NSW with a LVR of 80%.
If you are considering a fixed rate car loan, you can compare what’s available in our comparison table below which includes direct links to the providers website. This table is based on a loan amount of $20,000 for a 5-year loan term in NSW and is sorted by star ratings ( highest to lowest).
If you are considering a variable personal loan, you can compare what’s available in our comparison table below with direct links to the providers website. This table is based on a loan amount of $20,000 for a 5-year loan term for borrowers located in NSW