If you have bad credit or no credit, the thought of a lender looking at your credit is probably a little unnerving; sometimes terrifying is the word. But not all lenders require you to have stellar credit to get a loan. And a few won’t even check your credit reports or scores.
Here are five loans that don’t require great credit.
Retirement Account Loans
When you borrow against the funds in your 401(k) or another qualified retirement plan, you are essentially borrowing from yourself. Not only is good credit not required, your credit report will not even be reviewed for one of these loans. This is a true “no credit check loan.” As long as your plan allows for these loans, you can typically borrow against up to half of your retirement funds. You may be charged a small nominal fee. Interest is charged, however you are paying it to yourself. Note that loans against IRA accounts are not permitted.
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If your credit is shot but you have equity in your home and are 62 years or older, you may be able to use a reverse mortgage in lieu of a traditional “forward” mortgage. Funds can be used for any purpose, including debt consolidation or to retire your current mortgage balance.
“There are no credit requirements,” says Russell Silver with US Mortgage Corp. “Where forward mortgages all require a credit check and a certain credit score, the reverse mortgage does not require any credit score.”
Your credit reports will be reviewed as part of the application process, but that’s mainly to determine if there are any liens or judgments against the property that must be satisfied.
“You can be in foreclosure, you can just have had a bankruptcy, or you can have credit scores in the 400s,” Silver says. He added that he is working with a client who is almost three years behind on their mortgage payments (with a traditional mortgage), and may be able to use a reverse to pay off that loan and save the home. “This is someone whose credit is a disaster and they may be able to use a reverse mortgage,” he observes.
It can be easy to borrow for a college education, even if you are just out of high school and haven’t established credit yet. “Federal Stafford and Perkins loans do not require a credit check,” notes Mark Kantrowitz from FinAid.org, adding that while PLUS loans do take credit into consideration, credit reports are supposed to mainly be used to screen for very negative credit problems. He explains:
PLUS loan (both Parent PLUS and Grad PLUS versions) require the borrower to not have an adverse credit history, which is defined as a current delinquency of 90 or more days or a five-year lookback for derogatory events (bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, default determination). PLUS loan denial rates have doubled recently because of a change the US Department of Education made in October 2011 to add five-year lookbacks for accounts in collections or charged-off with a non-zero balance. It technically is not legal for the Department to have made this change, since adverse credit history is defined in regulations and the implementation change was not done through a new negotiated rulemaking and also did not conform to the master calendar provisions. I’ve been advising students and parents who are denied a PLUS loan to appeal on the basis of extenuating circumstances, as I’ve heard that the approval rate for appeals has increased. Even though this change occurred in 2011, it is not being noticed until now because most PLUS loan applicants got approved for the full year in September 2011, before the change.
Considering other types of student loans? Kantrowitz says that all private student loans made by commercial lenders require credit checks while some of the state loan programs do not require a credit check, or may take a more lenient view when evaluating credit.
Lenders are loosening the purse strings on auto financing, including loans to buyers with less than perfect credit. In the first three quarters of 2012, vehicle loans to buyers with subprime scores increased by 13.6% on new vehicles and 5.5% on used vehicles, according to Experian Automotive State of the Automotive Finance Report. Still, subprime vehicle loans are just a sliver of the market and you may find it difficult to finance a car if your credit history is poor or non-existent.
If you can’t get a loan but really need a vehicle, you may wind up at a “Buy Here, Pay Here” auto dealer. “It will likely be a high mileage car with no warranty, but at least you can get a car if you’re desperate,” says Steve Ely, CEO of eCredable.com. You’ll also pay a very high interest rate. The national limit is 36%, so you’ll need to check what the limit is in your state.
What if you don’t have bad credit, but you essentially have little or no credit? That’s a dilemma many younger people and immigrants find themselves in. Dealers often push them to ask relatives to cosign the loan, and that loan then spills over to the cosigner’s credit reports.
One option is to look into financing programs that use alternative credit agencies. An example: eCredable.com offers a platform through which prospective borrowers can build an “AMP” credit rating that verifies everyday bills such as rent, cell phone bills, utilities, etc. Then, through a partnership with Roadloans.com, borrowers with acceptable AMP credit ratings may be able to finance cars without a cosigner. Rates run between 11.99% and 17.99%. It’s still not cheap, but can be a lot cheaper than what a Buy Here, Pay Here dealer is offering.
[Related article: Rejected for an Auto Loan? You Have Options ]
Apply for a credit card and it is inevitable that the card issuer will request your credit scores. Most card issuers are looking for customers with good or excellent credit, though a few dip down into the “fair” credit category. (You can search for credit card offers by credit score range at Credit.com.)
If your credit isn’t strong, or if you haven’t established credit, you may want to consider a secured card. Issuers may check your credit — mainly to make sure you are who you say you are — but most of the time these cards are available to individuals with past credit problems, or those with little to no credit history. Even better, if you manage one of these cards responsibly and the lender reports your payments to the credit reporting agencies (most do), you may find they help your credit over time.
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