As the name suggests, no credit check loans are a type of loan whereby lenders issue funds without checking your credit history. However, most lending institutions prefer to conduct a credit check to assess your creditworthiness. So before these lenders trust you with their money, they need to ensure you’re capable of paying them back. That’s basically what credit rating assessment is.
If you have a bad credit score, you’ll have a hard time getting a loan. But this doesn’t entirely mean you can’t qualify for one. No credit check loans and bad credit loans are available when you need financial assistance. However, these loans usually come with higher interest rates, lower amounts and shorter repayment periods.
Before we get into details, let’s first discuss what a credit score is, how it works and factors that affect your credit score.
What is a Credit Score?
Credit rating is a numerical figure that ranges from 0-999 that determines your creditworthiness. The higher the score, the better. This is usually based on your credit usage and repayment history. So lenders use this information to evaluate your capability of repaying the loan.
A good credit score provides easier access to funding, while a bad score does the opposite. It’s highly recommended to check your credit rating before applying for a loan to avoid hurting your score. You need to understand that hard credit inquires can negatively impact your score. So applying for multiple loans can cause your score to dip and reduce your chances of securing a loan.
Factors that Affect Your Credit Score
There are a number of factors that contribute to your rating; the main ones include:
- Credit Payment History: it shows how you’ve been paying your credit in the past. If you paid on time or have any defaults etc.
- Current Debts: the total amount you owe on loans and credit cards.
- Length of your Credit History: this typically refers to how long your account has been active. The longer, the better, as you’re considered less risky.
- Credit Types: every single credit that you have, from credit cards to mortgage, bank loans, personal loans and so forth.
- Newly applied and approved Credit: How many new accounts you have, how many you’ve applied and approved recently.
How to Get No Credit Check Loans
Banks and credit unions typically don’t offer no credit check loans. You can get such loans from online lenders. And as mentioned above, you won’t get favourable loan terms as lenders see you as high risk. So the high-interest rates are to offset the risk of lending you money.
So if you’re ready to face those not-so-favourable terms, you can apply for a loan from independent lenders. If you’re not sure it’s the best route to take, consider credit unions. You might be surprised to secure a loan with a more favourable interest rate or terms even with a poor credit rating.