Rhiannon Philps
There are many reasons why you might not have a credit history. You might be young, a new arrival in the UK, or you may not have taken out any form of credit. Whatever the reason, not having a credit history can make things more difficult if you do eventually want to take out a loan.
A lack of credit history won’t necessarily stop you from getting a loan, but the options available to you are likely to be more limited and you may only be able to borrow a small amount.
Find out more about your options if you don’t have a credit history, and what you can do to start building up your credit score.
Why is your credit history important?
Your credit history records information about your finances and how you have managed credit in the past, including loans, mortgages, credit cards, car finance and more. It is one of the main factors lenders will look at to make a decision on your application.
If you don’t need to take out any credit, then your score may seem unimportant. However, even if you don’t want to borrow any money right now, starting to build up a credit history will help you when you apply for a form of credit in the future.
A good credit score shows you have made repayments on time and managed your credit responsibly in the past.
Not having a credit history doesn’t mean that you won’t repay a loan. However, it does mean that lenders won’t have any information about how you have previously handled credit or anything to give them confidence that you would repay the loan in full.
» MORE: Guide to credit scores
What are my options if I don’t have a credit history?
It’s not impossible to get a loan without a credit history, but it is more difficult. Because you have no previous history to show how you might manage your loan repayments, lenders will view you as a higher risk than someone who has a history of making repayments on-time.
However, lenders will also consider your income, employment status, and other factors to determine whether to offer you a loan, so having a limited credit history may not rule you out from getting one.
There are a range of lenders that specialise in providing loans to people with little or no credit history, but these are likely to come with high interest rates to compensate for the perceived increased risk.
Many lenders will allow you to get a quote or check your eligibility for a loan by conducting a ‘soft’ credit check, which doesn’t leave a mark on your credit file.
Bear in mind that, when you apply for a loan, lenders will conduct a hard credit check, which will appear on your credit file. As a result, making too many applications for credit in a short space of time could harm your credit score.
As well as specialist unsecured loans, there are some other options that may be suitable for people with limited credit histories.
» MORE: Am I eligible for a personal loan?
Credit builder card or loan
Credit builder credit cards and loans are designed for people with limited or poor credit histories. If you take out one of these and make all your repayments on time, you can start to build up your credit history and improve your score. This should help you to access more types of credit at more competitive interest rates if you need to borrow in the future.
Credit builder cards will usually come with a low credit limit, so it’s important to clear your outstanding balance in full each month to avoid high interest charges.
You can also typically only borrow small amounts with a credit builder loan. They are only available from certain providers, such as credit unions, and only if you meet certain criteria, such as having a low credit score or low income.
These loans may not work in the same way as a standard personal loan, so make sure you read the terms of each provider before applying.
Guarantor loan
When you don’t have a credit history and want a loan, applying with a guarantor could help. The guarantor acts as a form of security as they agree to repay the loan if you can’t make the repayments. This minimises the risk of lending to someone with no credit history, so it could help you get accepted for a loan and receive a lower rate of interest than you otherwise could.
The guarantor would typically need to be over 21 years old with a good credit score and a stable income, and they may also need to be a homeowner. Often, lenders also require your guarantor to be a close family member – a parent, for example.
Lenders will conduct credit checks on both the borrower and the guarantor.
Secured loan
When you take out a secured loan, you put an asset forward as security. This is typically a house, but it can also be another high-value item such as a car. The security minimises the risk for lenders as they are entitled to repossess your property to get back the money they are owed if you fail to repay the loan.
So if you have no credit history, you may stand a better chance of getting approved for a loan if you choose a secured rather than unsecured option. However, you need to consider the risk that you could lose your property if you default on the loan, so you need to think carefully if a secured loan is right for you.
Family or friends
Depending on your situation, you may be able to borrow money from friends or family. This can be a way for you to access money without needing to go to a lender and undergo a credit check, especially if you’re struggling to get credit elsewhere. It can also help you to avoid high interest rates.
However, you need to be aware of the potential impact that borrowing from a family member or friend could have on your relationship, particularly if you find it difficult to repay the loan.
To help protect both the lender and borrower from any future disagreements, you should put the agreement and the repayment plan in writing and make sure both parties are happy with the arrangement.
Bear in mind that, while this option can help you access a loan of sorts, it won’t have any effect on your credit score. So even if you repay it in full, you won’t have helped to build up your credit history unlike if you repaid a loan from an official provider.
» MORE: Pros and cons of loans from friends and family
Can I get a loan with no credit check?
No, whenever you apply for a loan, the lender will conduct a credit check. All FCA-regulated lenders have to assess an individual’s creditworthiness to make sure they can afford to take on the loan repayments, and a credit check is how they do this.
You may see ‘no credit check’ loans advertised, but these are likely to be from unauthorised lenders or from brokers, which pass your details on to lenders who would then conduct a credit check.
» MORE: What to do if you can’t get a loan
How can I build up my credit history?
If you can manage to build up your credit history before applying for a loan, you may increase your chances of getting accepted and receiving a lower rate of interest.
Some of the ways you can start to increase your credit score include:
- Registering to vote.
- Using a bank account responsibly.
- Setting up and paying direct debits.
- Checking your credit report and correcting any mistakes such as typos or outdated information. You can check your credit history for free, without affecting your score.
- Joining a service, such as Experian Boost or Credit Ladder, which uses information about your rent payments, bills, and other spending to build your credit score.
» MORE: 15 tips to improve your credit score
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