Banks rarely lend to people with no credit history, but a few real paths exist

Most banks will not give you an unsecured personal loan if you have no credit score at all. A credit score comes from a history of borrowing and repaying — if you have never done either, the bank has no data to assess your risk. However, you can still borrow money by offering collateral (something the bank can seize if you don't repay), by finding a co-signer (someone with good credit who promises to repay if you don't), or by building credit first through smaller products designed for that purpose.

The fastest route for most people is a secured loan or a credit-builder loan, both of which take weeks rather than months. The hardest route — and the one that teaches you the least about real lending — is finding a co-signer. The route that builds the most credit is a credit-builder loan, which is designed specifically for people in your situation.

Key Takeaways

  • A secured loan requires you to put up collateral (a car, savings account, or other asset) that the bank can take if you don't repay.
  • A credit-builder loan lets you borrow a small amount that the bank holds in a locked account while you make payments, building your credit history in the process.
  • A co-signer with good credit can help you get an unsecured loan, but they are legally responsible if you default.
  • Credit unions often have looser lending rules than banks and may lend to people with no credit if you have a deposit account with them.
  • Building credit first through a credit-builder loan or secured card takes longer but leaves you in a stronger position for future borrowing.

Secured loans: putting up collateral to borrow money

A secured loan is a loan backed by something you own. You pledge an asset — usually a savings account, a car, or a certificate of deposit — as collateral. If you don't repay the loan, the bank keeps or sells that asset to recover its money. Because the bank has collateral to fall back on, it will lend to people with no credit history.

The most common secured loan for someone with no credit is a savings-secured loan. You deposit money into a savings account at the bank, then borrow against it. The bank freezes that account so you cannot withdraw the money while you are repaying the loan. If you borrow $2,000, you might deposit $2,000 or $2,500 into the account first. You then make monthly payments on the loan, and once you have repaid it in full, you get access to your savings back. The interest rate is usually 5 to 10 percent, which is high but lower than what you would pay on a credit card or payday loan.

The advantage is speed: you can often get approved and receive the money within a week. The disadvantage is that you have to have the collateral upfront. If you don't have $2,000 in savings, you cannot borrow $2,000 this way. Some banks will let you borrow up to 50 to 100 percent of what you have deposited, so if you have $1,000 saved, you might borrow $500 to $1,000.

Credit-builder loans: borrowing to build credit from zero

A credit-builder loan is designed specifically for people with no credit or poor credit. The bank lends you a small amount of money — usually $500 to $1,000 — and puts that money into a locked savings account in your name. You cannot touch that money. Instead, you make monthly payments on the loan, usually over 12 to 24 months. Once you have repaid the full amount, you get access to the savings account and the money inside it.

The real value is that the bank reports your payments to the three major credit bureaus — Equifax, Experian, and TransUnion. Each on-time payment builds your credit score. After 12 to 24 months of perfect payments, you will have a credit history and a credit score, which opens the door to better loans and credit cards in the future. The interest rate is usually 6 to 12 percent, but you are essentially paying that rate to build credit, not to borrow money you need right now.

Credit unions and some online lenders offer credit-builder loans. Banks do too, though less commonly. Start by calling your bank or credit union and asking if they offer a credit-builder loan. If not, search online for "credit-builder loan" and your state name. Many credit unions will offer this product even if you are not yet a member, though some require you to open a membership account first (usually a $25 one-time fee).

Co-signers: borrowing on someone else's credit

A co-signer is someone with good credit who signs the loan agreement alongside you. If you don't repay the loan, the bank can pursue the co-signer for the full amount. Because the co-signer is legally on the hook, banks will lend to you based on their credit history rather than yours.

The catch is that the co-signer's credit is also at risk. If you miss a payment, it damages their credit score. If you default, the bank can sue them, garnish their wages, or report the debt to collection agencies. Many people ask a family member — a parent, sibling, or grandparent — to co-sign, but this can damage the relationship if you run into trouble. Before asking someone to co-sign, be honest about your ability to repay and understand that you are asking them to take on real financial risk.

Co-signers are most useful if you need to borrow a larger amount than a credit-builder loan offers, or if you need the money faster than you can build credit. However, relying on a co-signer does not build your own credit history. Once you have a co-signed loan and have repaid it on time, you will have some credit history, but future lenders will see that you needed help to borrow the first time.

Credit unions: often easier to work with than banks

Credit unions are member-owned financial institutions that often have more flexible lending rules than banks. Many credit unions will lend to members with no credit history if you have a deposit account with them, especially if you have been a member for a few months and have kept a positive balance.

To join a credit union, you usually need to live or work in a specific area, belong to a certain profession or employer, or be related to an existing member. Search for "credit union near me" or visit the CO-OP Network website to find credit unions you can join. Once you are a member, ask about their lending options for people with no credit. Many offer credit-builder loans, secured loans, or small personal loans at rates lower than banks charge.

Credit unions also tend to have staff who will sit down with you and explain your options, rather than routing you through an automated system. If you are new to borrowing, this personal attention can be valuable.

Building credit before you borrow larger amounts

If you do not need money right now, the strongest long-term strategy is to build credit first, then borrow. A credit-builder loan or a secured credit card will give you a credit score within 6 to 12 months. Once you have a score, you can borrow larger amounts at better interest rates.

A secured credit card works similarly to a credit-builder loan. You deposit money as collateral, receive a credit card with a limit equal to your deposit, and use the card for small purchases that you repay in full each month. After 12 to 18 months of on-time payments, many issuers will convert the card to an unsecured card and return your deposit. Secured cards are offered by most major banks and many online lenders.

The advantage of building credit first is that you will may have access to for better terms on future loans. A personal loan after you have built credit might carry a 7 percent interest rate instead of 12 percent. Over a $5,000 loan, that difference adds up to hundreds of dollars. The disadvantage is that it takes time — usually at least 6 months, more often 12 to 18 months.

What to expect during the application and approval process

Most banks will ask for a government-issued ID, proof of income (a recent pay stub or tax return), and proof of address (a utility bill or lease). If you are applying for a secured loan, you will also need to show proof of the collateral — for a savings-secured loan, the bank will verify your deposit directly.

The approval process usually takes 3 to 7 business days for a secured loan or credit-builder loan. Some online lenders can approve you the same day, though funding may take a few more days. If you are applying with a co-signer, the bank will run a credit check on both of you and may take longer to approve.

Once approved, the bank will disburse the money — either to your account, by check, or by direct deposit. For a credit-builder loan, the money goes into the locked account, not to you. For a secured loan, you receive the money and begin making monthly payments.

Frequently Asked Questions

Can I get a loan if I have no income?

Most banks require proof of income to lend, even for a secured loan. If you are unemployed, you may still may have access to for a secured loan if you have collateral, but the bank will want to know how you plan to repay. Some credit unions will consider other sources of income, such as disability payments, unemployment benefits, or child support.

What if I don't have anyone to co-sign for me?

A co-signer is optional. You can still borrow through a secured loan or credit-builder loan without one. These routes take longer or require collateral, but they do not depend on finding someone willing to take on the risk.

Will a credit-builder loan hurt my credit score?

No. A credit-builder loan is designed to build your score from scratch. Each on-time payment improves your score. Missing a payment will hurt it, but making all payments on time will raise your score steadily over the loan term.

How much can I borrow with no credit?

Secured loans are usually limited to the amount of collateral you have. Credit-builder loans typically range from $500 to $1,000. If you have a co-signer, you may borrow more, but the amount depends on the co-signer's income and credit. Call your bank or credit union to ask what amounts they offer.

What happens if I miss a payment?

Missing a payment will damage your credit score and may trigger late fees. If you miss multiple payments, the bank may declare the loan in default and take the collateral (for a secured loan) or pursue the co-signer (if you have one). Contact your lender immediately if you think you will miss a payment — many will work with you on a payment plan.