If you don’t have much of a credit history, getting a loan can be difficult. So when a financial institution comes along offering you a loan without checking your credit at all, the idea can be very tempting. Here’s why accepting that offer is almost universally a bad idea.
Perhaps you got a mailer or saw a TV commercial. Maybe you even got a phone call. “Instant money! Good credit, bad credit, no credit at all! Everyone is approved!” If you just happen to need a personal loan at the time, and you have little to no credit, you might be tempted to accept. A loan agency that won’t even check your credit? It’s a win for you, but is it too good to be true?
Unfortunately, it is. If you don’t have a credit history, your credit score will be low, making it hard for you to borrow money. Predatory lenders know this, so they target people likely to have low credit scores, offering their services without that scary credit check and the lackluster results that will inevitably follow. This is why you should always avoid “no credit check” loan operations. Because they don’t have your best interests at heart.
To understand this issue you first need to know what a credit score is. This number tells lenders how likely you are to pay any loans you might take out. Assigned by data analytics company FICO, it puts each person in one of five ranks:
- Very Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800-850
It’s based on a number of factors, but one of the biggest shortcomings of this credit scoring system is that if you’ve never borrowed before, or if you’ve only borrowed for college, your score will be low. Even if you have a steady, well-paying job and a great education. You are guilty until proven innocent, as it were.
The system is a bit cutthroat, but don’t lose hope if that’s you. At Helix, we offer short term loans to people with many levels of credit. In fact, most of our customers have a credit score of 670 or below, putting them in the “Fair” or “Very Poor” categories. We understand the struggles of just starting out on your credit journey, and we want to help.
When you apply for a loan, one of three things will happen related to your credit score. Let’s take a closer look at each one so you can find the right loan institution.
A Hard Credit Check
Many reputable lenders, such as Helix, will perform a hard credit check whenever you apply for a loan. With this, know that we run a credit check with Clarity Services, owned by Experian. It is a full, official history of your credit. These bureaus will compute your credit score based on a number of factors, such as if you’ve paid on time, the capacity of your available loan amount you’ve used, the types of credit used, the length of your credit history, and your past credit applications.
That last item is of particular note. If you pull too many hard credit checks per year, it can actually lower your credit score by up to five points. That’s not exactly fair to you, but that’s the business, and it’s something you should know. Credit bureaus see a multitude of credit checks as a sign of desperation.
Yes, Helix runs hard credit checks, because we believe this is the most responsible way to get to know our potential customers. But don’t worry. Repaying a Helix loan on time or ahead of schedule can actually improve your credit score.
A Soft Credit Check
Some institutions will run a soft credit check. These aren’t as reliable or detailed as hard credit checks, and therefore don’t carry as much weight. The most common soft credit checks are run for pre-approval. You’ve probably gotten that mailer from a credit card company. “You’ve been pre-approved! Open immediately! Time-sensitive material!”
It sounds positive, but all it really means is that they’ve run a soft check. Usually, as part of the application process, they’ll run a hard check anyway. If you run a soft check on yourself, it will show up on your credit history, however, unlike a hard credit check, a soft check won’t affect your credit score.
No Credit Check
Here’s the one you really need to worry about. Any institution that doesn’t run your credit should be an immediate red flag. Firstly, and most importantly, this could be a sign of a scammer. Check out our article on how to identify a scam loan agency for more tips, but remember, credit scores help lenders get an idea of whether or not you’ll faithfully repay your loans. Scammers don’t care about that, because they’re usually just trying to stiff you through a bogus “application fee” or “insurance payment.”
Unfortunately, many actual, registered lenders don’t run your credit score for the same reason. They don’t care if you’ll be bad at repaying your loans. In fact, they want you to fail to repay your loans on time. These are almost always payday lenders.
We’ve written at length about why you should never choose payday loans. Their interest and APRs are through the roof, and they end up being dangerously expensive to borrowers. A small loan taken out to cover an emergency ends up costing far more in the end.
When you pay off your loan on time, you’ll merely have to cover interest and whatever fees the payday lenders tack on. But that’s not often what happens, and payday lenders like it that way. They want to trap you in the rollover cycle.
Rollover occurs when funds from the next paycheck can’t quite cover the initial payday loan plus the interest and fees. So the lender rolls the remainder into a second loan, which also provides the borrower with cash to cover living expenses. Two weeks later, at the next paycheck, the cycle continues, and so on. And, of course, each rollover comes with fresh fees.
Payday lenders make a killing on this practice, and they’re banking on your not being able to repay your loan. So naturally, they won’t run a credit check. It’s a business expense for them to do so, and it’s not worth it.
Thankfully, you have better options if you need money fast. Helix offers small personal loans with a five-minute, online personal loan application process and an instant decision. If approved, you’ll see the money in your account within one business day. Unlike shady payday lenders, we want you to be educated about the details of your loan. So we offer clear, concise terms, a set lending schedule, fixed rates, and no hidden fees. We won’t penalize you for early repayment, either. In fact, we encourage it.
And remember, most of our loan customers have low credit scores, categorized as “Fair” or “Very Poor.” The credit bureaus call them “sub-prime,” but we know them to be normal, everyday people facing unexpected expenses. Yes, we will do a credit check, but that doesn’t mean you won’t be approved. Then, once your loan is repaid, you’ll see a helpful boost in your credit score.
Apply for a personal loan through Helix today.