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Getting a Loan with No Credit History

Whether you’re just starting out on your own, you’ve recently moved to Canada, or you haven’t previously needed credit, getting a loan with no credit history can prove a bit more difficult than you might’ve thought. Worry not, though! There are ways to begin building your credit history, along with loan options for even the blankest of credit history slates.

Ways to Begin Building Your Credit History

When you begin to build your credit history, it can feel a bit like the chicken-or-the-egg scenario. You need access to credit to build your credit history, but you don’t have the history needed to get access. There are a few workarounds, though. Just make sure whatever you do, do not take out more credit than you can handle.

Get a mobile phone
Can a mobile phone really impact your credit? The right one definitely can. Some phone carriers like Telus will work with no-credit customers to get a mobile phone and report payments to credit bureaus. It’s a post-paid plan rather than a pre-paid plan, where you pay for the service you already used each month instead of paying for the service you will use each month. This approach is ideal because you’re actually getting a vital product, giving you more incentive to pay on time.

Apply for a secured credit card
Globe GenYmoney suggests getting a secured credit card as a means to build credit. Secured credit cards are credit cards that are only approved if you have funds or collateral to put down. It’s a way for people with no credit to begin building their credit history with little-to-no risk to banks. Your credit limit will equal the value of what you put down, so it’s wise to begin with small increments and go up from there - especially because interest rates on secured cards can be pretty high. This keeps you honest and better ensures you’re going to pay off your balance each month.

It’s important to note there are requirements to qualify for a secured credit card. You need to have acquired permanent resident status, a chequing or other type of account in good standing (or have a household income of at least $15,000), and you need to go to an actual location to apply. There are no online applications.

Incorporate a variety of credit says you should consider diversifying your credit portfolio. This doesn’t mean running out and applying for every different type of loan you can; too many loan inquiries in a short period of time actually counts against your score. Instead, think of this as a multi-year approach. Other opportunities of credit include retail cards from department stores (make sure they let you use the card outside of the store), as well as car loans, student loans, and secured lines of credit. These are all loans that offer opportunities for those with no credit history.

Keep your existing accounts open
Any accounts you have open - keep them open. The experts say it’s better to put the cards in a locked safe than to just close the account. Here’s why: Credit utilization has an impact on your score. So, if you have credit availability and no balance, you look good. If you close the card and no longer have credit availability, you look riskier.

Pay your bills on time
Believe it or not, paying your hydro on time can actually improve your odds of getting a loan. When you have no or little existing credit history, some banks or other lenders will request information from your bank account to investigate your ability to pay bills on time. This helps them determine what level risk you may be as a borrower.

Loans for Little to No Credit History

While you’re looking to build your credit via other means, getting a loan with no credit history is not an impossible task. There are a few opportunities for getting cash with no credit history - and some with no credit check!

Co-signed loans
If you’re seeking a larger loan for a specific purpose, such as a personal loan, a family member or friend in good financial standing may be able to help by co-signing on the loan. Co-signing means that an additional person is willing to take responsibility for loan payments in case you, the borrower, cannot. This makes those with no credit history more appealing to lenders, as they have better assurance they will be paid back, no matter who it’s by.

Remember, a co-signer is just as responsible for your loan as you are, which means that if you are unable to pay for the loan, they’ll be held liable. Only use a co-signer if you are positive you are able to repay the loan. Consider ways to approach the friend or family member about co-signing the loan and do all the research about their liability beforehand.

Credit building savings loans
In the past few years, some lenders have begun offering what’s called savings loans, or loans that require no money upfront. Here’s how they work. You take out a savings loan for $2,500. The lender then sets aside an additional $2,500 in another account that acts as collateral on the loan should you not be able to pay it back. If you make the payments on time, you slowly get access to that set-aside $2,500 - hence the name, “savings” loan.

Savings loans may not be the best option if you are using them to save money; they come with high fees and interest rates. But if your intent is to get a loan with no credit history and build your credit with it, savings loans may be a good option for you.

Building up credit can take time, but there are ways to do it. There are plenty of options to get the money you need while you're in the process. Remember to do plenty of research and don't take our more credit than you can handle.


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