A no credit check loan is just what it sounds like: a loan in which the lender does not run a credit check on you, the borrower, before lending you money.
For people with bad credit or no credit, this is incredibly important. It allows you to clear one of the major hurdles people face when trying to secure a loan - the credit check.
When a lender checks your credit, they contact one or more of the three credit bureaus (Expedia, TransUnion, and Equifax) and request information about you. This is called a credit check. The credit bureau responds with your “credit score”, which is simply a number ranging from 300 on the low end to 850 on the high end. These numbers are based on your history of borrowing and repaying loans, plus a range of other factors. A low score means you have poor credit, and a high score means you have good credit.
Note that there are several different popular formulas used by the bureaus, including the FICO score and VantageScore. And because each credit bureau has its own unique way of calculating these scores, your credit rating may vary slightly from agency to agency.
The last thing to understand about credit scores is the difference between a “soft check” and a “hard check.” Both are considered a type of credit inquiry, and both give the lender information about you - but there are some key differences as well. Here’s what you should know about soft vs. hard credit checks:
A soft credit check or "soft pull" occurs anytime you or a creditor “looks” at your credit score. But as the name suggests, soft checks (unlike hard checks) do not impact your credit score. They are, however, still listed on your credit report when performed by a lender.
Since soft checks don’t affect your credit score, many lending companies will pull this information to pre-approve customers who match their products. Employers also tend to use soft checks if they are pulling your credit for a job application. Interestingly, any time you check your score through a credit bureau or other service, you’re performing a soft check on yourself.
Unlike soft checks, a “hard credit check” can impact your credit score. Hard checks are used by lenders to pull more in-depth information while making a final loan decision and are usually one of the last steps when applying for and accepting a loan.
Because these credit checks do impact your score, any hard pull requires your consent in order to be processed. It’s generally a good idea to review your credit report for new inquiries. If you see hard checks you don’t recognize, follow up with your bank and lender in order to prevent fraud.
As we mentioned above, there are many different ways for credit bureaus to calculate your score. The most common of these is the FICO credit score was introduced over 25 years ago in an effort to quantify risk based on a few variables. The exact formula for calculating this credit score is a closely guarded secret. But repaying loans on time (i.e. "payment history"), keeping debt small ("credit utilization"), and building a long-term credit profile are some proven ways to increase your FICO score.
But what about credit checks beyond the traditional FICO score? As with most industries, the credit reporting industry has seen rapid change in the past decade as new businesses and established companies seek to innovate on older techniques. Some of these alternative credit reporting companies, such as Clarity, are smaller branches of the three major bureaus. Others, like Innovis, have grown almost as large as the other bureaus. These alternative credit reporting companies use a collection of similar data as well as other less common data to rate your creditworthiness.
So how exactly do lenders evaluate you for a no credit check loan? Instead of pulling your credit score and credit report, they review a slew of other financial data.
With this information, lenders are able to get a more holistic look at your financial background, excluding credit history, before making a decision on lending you money. Payday lenders, for instance, tend to look at your income and employment to make a lending decision. Possible, on the other hand, looks at data such as your bank account history to determine whether to give you a loan.
When lenders rely on credit scores alone, they lock out those who have little or no credit history, or are trying to rebuild after accumulating bad credit. This leaves many prospective borrowers in a catch-22. They don’t have enough credit history to qualify for loans, credit cards, and other debt - and without outstanding loans, credit cards, and debt, they can’t build their credit.
This situation is more common than you might think. According to research by Experian in 2017, about 25% of American adults have a thin credit file. A thin file usually lists 1-4 credit accounts and can make it difficult to find qualifying loans. Another 16% of adults have little or no credit history, making them essentially invisible in credit checks.
Fortunately, as we’ve discussed, some lenders are willing to skip the credit check if you’re able to provide other financial information. This opens up real options for those with thin files and others trying to build credit history.
For instance, secured credit cards and credit builder loans require a larger up-front cash commitment, but offer a foot in the door. Short-term loans, installment loans, and payday alternative direct lenders can also be a pathway to better credit. Lender rates and fees for these loans tend to be higher, while repayment periods are typically shorter, due to the higher risk lenders take on by extending this type of credit to borrowers.
The good news is that your credit will improve over time as you build your history of balancing debt and repaying loans. Note that personal loans offer lower fees and can also help build credit history, but the minimum credit score requirement may make them difficult to qualify for. Learn more about payday loans and payday loan alternatives to see if they’re the right option for you.
If you’re considering a no credit check loan, there are 5 basic criteria you need to meet as a loan applicant. You will likely qualify for a no credit check loan if you…
As we’ve seen, many different types of lending are technically considered no credit check loans - from credit builder loans to secured credit cards and payday loans. In fact, just about the only thing they have in common is the absence of a credit pull or credit inquiry on the borrower. Additionally, some conventional loans have a no credit check alternative. Let’s review some of the options:
Personal and payday loans are the most common types of no-credit check loans. The loan amount may vary from a few hundred dollars to thousands. And thanks to their quick approval process, these so-called “instant loans” can often put money in your wallet within minutes.
Since payday loans are inherently more risky for lenders and are considered unsecured loans, they tend to have higher interest rates and fees and shorter repayment periods. While almost all personal loans, student loans, car loans, mortgages, etc. are reported to the credit bureaus, traditional payday loans tend to be unreported. If you’re looking to build credit, make sure your lender regularly reports to the credit bureaus. Here at Possible, we directly report to the credit bureaus so your credit can be built over time. Without consistent reporting, your credit score will never improve, no matter how diligent you are about making payments.
A secured credit card requires an upfront money deposit - usually a few hundred dollars in cash from the borrower. This cash deposit helps lenders minimize their risk while lending to you. As you use your card and make payments on its balance, your lender reports to the bureaus, helping to build your credit score. After you have established enough lending history, your card can be “upgraded” to a standard credit card and your cash deposit is returned by your lender. If you cannot qualify for an unsecured (standard) credit card, you can consider a cosigner on the credit card.
Credit builder loans are a unique way to build your credit history, and they work very differently from normal personal loans. If you’re approved for a credit builder loan, your lender will set aside the amount (typically $300 to $1000) in a bank account that they control.
When you’ve fully paid off the loan (plus interest), you’re given access to the bank account and can begin using the funds.
Credit builder loans are available at many banks and credit unions. Rates and fees are typically low on these loans, though there can sometimes be an origination fee. It may be surprising that you have to pay off a credit builder loan before you get the money, but remember - the primary purpose is to help those with no credit history or bad credit improve their credit score.
While traditional lenders overlook a growing portion of the public, new types of lending have appeared to fill in the gap. One of the more radical shifts has been the appearance of “peer to peer” lending markets. Peer to peer lending matches borrowers with individual lenders to finance loans without the backing of any major banks or financial institutions. These loans tend to have decent interest rates due to the competitive nature of the market and some lenders may be more willing to approve lenders with lower credit scores than traditional banks.
While P2P lending can be a great alternative to payday loans, most lenders will not report to the credit bureaus, making it difficult to build credit. And because borrowers will be working directly with an individual rather than a company, P2P lending generally offers less in the way of services and support than a bank or other established money lender.
A title loan requires an asset from you, the borrower, which the lender keeps as collateral. For instance, one popular type of title loan allows you to put up your car title as collateral. As long as you’re repaying the loan on time, you can keep driving your car and will ultimately keep the title. But if you fail to repay the car title loan, the lender will get legal rights to your vehicle.
Loan terms and interest rates can vary significantly depending on your lender. Because these are secured loans and there is less overall risk of loss for the lender, no credit check title loans are relatively common.
In the world of personal lending, the term “installment loan” can be a little confusing. An installment loan is simply a loan that you pay off over time in small, predetermined payments. Each of these payments is considered an “installment.”
So a personal loan, for example, is typically a long term installment loan. You might repay it in 24 monthly installments over the course of two years. A payday loan, on the other hand, is not typically an installment loan because you’re expected to pay it back in one lump sum. A car title loan may be an installment loan, or it may require lump-sum repayment - it depends on the lender and your individual circumstances.
If you’re trying to build your credit history, an installment loan is a very useful tool. It shows your diligence and reliability in making regular payments over a significant period of time. And a good lender will report these positive signs directly to the credit bureaus, which builds your credit score. Bear in mind that the fees and interest rates on installment loans may still be high if you begin missing payments or have taken out a short term installment loan. For an installment loan that builds credit history, check out the loan options from Possible.
While no credit check loans can be a helpful tool in building credit, it’s important to understand the advantages and drawbacks before you proceed.
Your current credit score isn’t taken into account. If you have bad credit history or a lack of credit history, no credit check loans can be a great entry point to building credit.
Your credit score isn’t impacted by applying. With poor credit, it can be difficult to be approved for new loans. And with every hard credit check, your score can go down, a short-term financial issue.
Better chances for approval. No credit check lenders usually have their own criteria for lending money. Payday lenders and other companies may take a look at a few high-impact factors such as your income and employment history, while still others will create a complex system to better understand your creditworthiness.
No credit check loans, such as short-term loans and payday loans, tend to have much higher rates and fees than traditional loans. This is usually caused by the higher risk of lending. Depending on the company you work with, payday and short term loan rates can vary from 100% to over 700% APR (annual percentage rate).
Your options are limited when it comes to getting a no-credit-check long term loan. Long term loans are rarely available for those with little to no credit. If they are, they tend to be secured loans in which important things like your car or house are used as collateral.
These loans tend to be smaller in dollar amounts and require faster repayment. Since no credit check loans tend to be riskier for lenders, the total loan amount is generally smaller. You may also need to repay the loan within a few months, and make payments frequently (i.e. weekly, biweekly, or monthly at most). Balancing your debt and keeping track of your repayment schedule is important to stay out of a debt cycle. Since the payback periods tend to be shorter, individual payments tend to be larger.
If you have decent credit, a plethora of lending options are available to you - and these will often be preferable to no credit check loans. However, if you have little to no credit, your options are fairly limited. A few of the best alternatives to no credit check loans include:
Keep in mind that all of these alternatives have their benefits and risks so it’s important to do thorough research before you take action.
While different companies have different procedures, most follow a similar roadmap when you apply for a no credit check loan. Lenders will generally need to verify your identity; collect information on your financial health; assess the risk in lending money to you; and finally, make a lending decision based on their assessment. To see how this process works, let’s review what happens when you apply for a loan from Possible.
In order to prevent fraud and identity theft, a lender will need to verify your identity before extending a new loan. Most will request your driver’s license, social security number, and/or other documents that can prove your identity.
At Possible, we require a state issued ID and a valid social security number in order to check your identity against government records. We also ask for a selfie at the time of the loan application to make sure nobody else uses your information to apply.
After a lender knows who you are, they’ll need to review your financial background to make a lending decision. During a conventional loan application, the lender will typically run a credit check at this point.
For the no credit check loans offered by Possible, you’ll link your bank accounts instead. Since we don’t look at your FICO score or a credit report, we rely on this information to make a decision. We'll consider your bank balance, income, and history of returned payments when gauging your financial health and creditworthiness.
Now that the lender has collected the information they need, they can begin to assess the risk of your loan.
This process is unique for each lender. At Possible, we look at your overall financial health to ensure our loans will truly help you - rather than become an added financial burden. Factors such as your income and the number of other loans you have open help us avoid over-lending and doing more harm than good.
Once a lender has evaluated the risk of extending a new loan to a borrower, they decide on the size of the loan - i.e. how many dollars they can lend you. With a line of credit, this will be the total amount you can borrow. With structured loans, it will be the amount they move to your bank account (and which you’ll ultimately repay). Short-term cash advances and payday loans will generally be for smaller sums than long term personal loans and other installment loans.
Possible loans are repaid through multiple installments. Once we have a better picture of your financial health, our algorithms help us determine the amount we can safely lend to you. We look at a variety of factors like recent income and current bank balance before making a financing decision.
Whatever kind of loan you get, and whichever lender you work with, it’s absolutely crucial to do your due diligence. That means reading the fine print and making sure you fully understand the terms and conditions of your loan!
While many reputable companies offer no-credit and low-credit loans to help customers with bad credit, predatory lenders also operate in this space, hoping to capture unprepared customers. We started Possible to provide an alternative to traditional predatory payday lenders and give our customers access to cheaper, more flexible, and kinder loans that build long-term financial health.