Typically, when applying for a loan, the potential lender will perform a credit check (sometimes called a credit inquiry) on the borrower. A loan without a credit check is a viable alternative to traditional financing for those who are looking for a loan but know that their credit history will not pass.
A credit check allows a business to access a potential borrower’s credit report from one of three major credit bureaus – Experian, Equifax and TransUnion. These inquiries are especially important if the borrower is requesting a large sum of money, such as for a home loan or car loan. These reports will show the borrower’s finances and ability to pay.
If a borrower’s credit history shows an abundance of late or missed payments, too many recently opened accounts, or high credit utilization (e.g., credit card maxing), the lender may deny the loan request. These red flags also negatively affect the FICO credit score, and borrowers rated below 600 miss out on creditworthiness. Credit checks exist to prevent the consumer from borrowing more than they can repay and to protect the lender against financial loss.
Maybe you went bankrupt or dealt with collection agencies in the past which would have hurt your credit rating, but you’ve been in charge of your finances ever since. Or you are a recent college graduate who has never applied for a credit card and therefore has no credit history. A loan without a credit check could be right for you.
As the name suggests, a no credit check loan involves no credit check. In financial terms, we talk about subprime loans. Lenders provide these loans to borrowers with a higher risk of default than more favorable prime borrowers. However, as with any financial decision, there are pros and cons to using no credit check loans.