The catch-22 of credit causes a lot of people to stumble, especially when they first start building their credit history. The rule goes like this: To get a decent loan, you need good credit, right? But what happens when you don’t have any credit history or you’ve had issues that resulted in a poor credit history or score? In those cases, you may be looking for a loan that doesn’t require good credit, as well as one that won’t result in dropping your score further.
The good news is that bad credit loans definitely exist. They may be more expensive than loans you can get with good credit. But you don’t have to break the bank and a fair deal is possible, even if you’re looking for loans without a credit check.
Better yet, many lenders these days offer application processes that only result in a soft inquiry on your credit score, rather than a hard inquiry. While this distinction may seem confusing, the key takeaway is this: soft inquiries do not impact your credit score and are only visible to you. A hard inquiry, on the other hand, is visible to other lenders and typically causes your credit score to drop.
Find out more about loans that don’t require a hard inquiry into your credit below, including how you can get one.
Why Do Many Lenders Look at Your Credit Score?
Banks and other lenders pull your credit report or look at your score when evaluating you for a loan as part of their risk management strategies. Someone with a higher credit score is seen as a lower risk because they’ve demonstrated an ability and willingness to pay debt back on time.
Someone with a lower credit score is seen as a potential risk because they may not have a good history of making timely payments. If you have no credit score or credit history at all, you can be seen as a wild card. Lenders don’t have any data on whether you’re likely to pay a loan back or not.
If you find yourself in this paradox, you’re not alone. Around 16% of adults in America have no credit score at all and more than 100 million have a low credit score. To help individuals build better credit, organizations like Wise Loan offer loans that don’t require an applicant to have a good credit score.
How to Get a Loan Without a Credit Check
To get a loan without having a high credit score, you must find a lender that deals in such loans. You’ll also want to make sure you’re getting the best deal possible and try to avoid predatory lending situations like some payday loans. Some short-term high-interest loans can cause you to get caught in a debt cycle that’s difficult to get out of.
Can I Get a Loan without a Hard Inquiry on My Credit Report?
Yes. Many lenders offer loans that are designed to help you successfully pay them off and build your credit to applicants with poor credit. Wise Loan, for example, prides itself on a responsible approach to lending that doesn’t trap people in so-called pay-day loan cycles and rewards borrowers for paying on time, and the application process involves only a soft inquiry on your credit report, visible only to you and with no impact on your score.
Advantages of Loans for People with Bad Credit
Some benefits of getting a loan from Wise Loan include:
- Not needing good credit in order to get one
- Not having a hard inquiry on your credit report, which would result in a drop in your score
- The ability to build credit with the loan if you work with a lender that reports timely payments to the credit bureaus
- The ability to get money you need for an urgent expense, even if you have lackluster credit
Disadvantages of Loans for People with Bad Credit
These types of loans are typically more expensive overall. The interest rates may be higher to make up for the lender’s risk, as they are disregarding either your bad credit history or lack of credit history, to some extent
This lending area is also more likely to attract scammers who prey on people who are in an at-need situation. Scammers may set up loans that seem too good to be true in the interest of making money by charging hidden fees or even stealing personal information.
Look for red flags such as lack of contact details on a website, unnecessary pressure to complete the loan process, interest rates that are significantly higher than other companies offering similar loans and lack of transparency about fees and rates. These can be signs that a lender isn’t on the up-and-up and you might want to move on to another option.
How Can I Get a Personal Loan if I Have a Bad Credit Score?
Bad credit loans are designed to help people with low credit scores build their credit. Some people also ask a cosigner with better credit to guarantee a loan for them, which can help them secure a loan in the first place, or get a better interest rate. For customers looking to apply without further risking their credit score, lenders like Wise Loan offer application processes that require only a soft inquiry on your credit report, meaning that the application itself won’t cause your score to drop at all.
Will Taking Out a Loan Hurt My Credit Score?
Taking out a loan with Wise Loan won’t hurt your credit score unless you don’t make your payments on time, since the application process only results in a soft inquiry on your credit report. If the lender reports payment status to the credit bureaus, late payments can significantly hurt your credit.
Applying for a loan that requires a hard inquiry can hurt your credit score by a little bit. Recent hard inquiries can bring your score down slightly — and a lot of them in a short period can look bad to lenders. So avoid applying willy-nilly for loans you know you can’t get to avoid needless inquiries on your credit history.
How Do I Apply for a Bad Credit Loan?
Find a lender you are comfortable dealing with. Read about the loans the lender offers and what you might need to get one. To get a loan from Wise Loan, for example, you may only need a valid picture ID, a checking or savings account and an address in a state where we offer loan products.
The reason you need a valid bank account is to receive the funds from your loan as an electronic transfer. You may also choose to set up the account to make automated payments on your loan.
Once you know you have everything required to get a no credit check loan, start the application process. The Wise Loan application process only takes a few minutes, and if you’re approved, you can even opt for instant funding in many cases.
Frequently Asked Questions About Loans for People who Have Bad Credit
Can you borrow money online instantly?
Yes, some lenders — including Wise Loan — offer instant funding options for loans. To qualify for instant funding, you typically have to have a checking account with a Visa or Mastercard debit card attached to it. That’s because the funds are transferred via the credit card network instead of normal ACH banking transfer channels.
Can you apply for a loan without hurting your credit?
Yes. While an inquiry on your credit might drop your score by a few points temporarily, having a loan and paying it off on time is actually really good for your credit. As long as you manage your loan responsibly, it shouldn’t hurt your credit in the long term.
How to spot a soft inquiry loan
Soft inquiry loans are typically easy to spot. Lenders typically say up front on their websites or on loan product pages whether applying will hurt your credit score. For lenders that only make a soft inquiry, the inquiry is only visible to you when you review your credit report. This inquiry remains on file for 24 months and has no effect on your credit score. If you have any questions about whether the lender will run your credit, you can ask before you apply.
What if you don’t qualify?
If your loan application is denied, find out why. If you applied for a loan that required a credit check, the lender must send you an explanation in writing letting you know if it used your credit history to make the decision and why it denied you. Asking for an explanation on why you were denied helps you understand how to increase your chances for approval in the future.
What is a soft credit inquiry?
A soft inquiry occurs when someone pulls your credit but it’s not for the purpose of evaluating you for a specific loan or opportunity. These inquiries show up on your credit report for you, but they don’t show up for lenders and won’t impact your score. Examples of soft inquiries include when you check your own credit or your credit is pulled for the purpose of prequalifying you for an offer you didn’t apply for yet.
What is a hard credit inquiry?
A hard inquiry occurs when someone pulls your credit for the purpose of evaluating you for a loan or credit card. These inquiries do impact your credit score and are shown to prospective lenders who pull your report.
How could a loan from Wise Loan affect my credit score?
Wise Loan doesn’t do a hard credit pull, so your credit score won’t be impacted by applying for one of our loans. We do report payment history to the credit bureaus, though. If you pay your loan on time, it results in positive credit payment history — which can be good for your score. If you miss loan payments with us, that can result in negative payment history, which is bad for your score.
The recommendations contained in this article are designed for informational purposes only. Essential Lending DBA Wise Loan does not guarantee the accuracy of the information provided in this article; is not responsible for any errors, omissions, or misrepresentations; and is not responsible for the consequences of any decisions or actions taken as a result of the information provided above.