Proof of income tells your lender that you can repay your loan, and you’ll hardly get approval for a loan without one. The truth is, lenders are there for business and not some charity work, so they need to recoup their investment.
It’s best to have proof of income when applying for a personal line of credit. However, how can you get a personal line of credit without a pay stub, W-2 tax form, payroll verification, or tax return to show a steady income?
- Have Excellent Credit
- Maintain a Low Debt-To-Income-Ratio
- Get a Co-Signer
- Provide Collateral
Let’s explore these points!
1. Have Excellent Credit
For borrowers with no income, a credit score may serve as the key metric for determining creditworthiness. Your credit score gives lenders insights into how responsible you were with past credits, which foreshadows your future behavior. Therefore, an excellent credit score can be a positive sign for the lender to approve your personal line of credit.
Take time to work on your credit before going for a personal line of credit with no income proof.
Here are some tips to help you boost your credit score:
- Always Make Payments on Time—Making on-time payments is a quick way to boost your credit. Your credit history is a major contributor to your credit score, making up 35% of your credit score. Plan for all your fixed costs like mortgage, rent and credit card payments, and pay them on or before the due date. A simple hack to making payments on time all the time is automating your payments.
- Take a Credit Builder Loan—A credit builder loan is a special loan for people with patchy credits. The idea is for the borrower to take out a loan (lump sum) and repay the money plus interests in monthly installments. The lenders then report the loan payments to the credit bureau to help the borrower build his or her credit. However, unlike the traditional loan, the borrower receives the money at the end of the loan’s term, when he or she has paid off the loan. To build credit through a credit builder loan, plan your loan repayment before applying for the loan.
- Become an Authorized User—Make someone else add you as an authorized user so you can build credit fast. Becoming an authorized user helps you piggyback the cardholder’s good credit habits to improve your credit history and score. This means that, as the primary cardholder makes on-time payments, the positive payment history reflects favorably on your credit report. Find someone who has stellar credit and ask him or her to add you as an authorized user on any of his or her credit cards.
- Don’t Close Any Credit Account Unless the Card Has Crazy APRs or Fees—All credit cards and bank accounts (whether active or not) remain on your credit report, which is a good thing because length of credit history accounts for 10% of your credit score. Don’t close any dormant bank accounts, especially any account with overdraft facilities, credit cards and store cards. This gives you a better score and a better chance of obtaining credit.
- Avoid Applying for Credit—Don’t open a new credit for a while. Every credit application reflects on your report as a “hard inquiry,” and having too many hard inquiries is not healthy for your credit.
2. Maintain a Low Debt-To-Income Ratio
To get a personal line of credit without proof of income, keep your debt-to-income (DTI) ratio below 35%. Some experts say 30%, but the bottom line is 30-35% is a good range under which you want to keep your DTI metric.
Lenders use the DTI ratio—your total monthly debt payments relative to your income—to assess your financial situation. Generally, lenders see you as a risky borrower if you have a high DTI ratio. To get a personal line of credit with no income proof, ensure you have a low DTI by:
- Paying off all debts.
- Avoid making large expenses above your credit limit
- Taking new loans for large purchases
- Tracking your spending and avoiding unnecessary expenses that cause you to go into debt
- Living within your means
>>>PRO TIPS: How to Get a Low-Doc Personal Line of Credit
3. Get a Cosigner
To get a personal line of credit with no income proof, get a co-signer if possible.
Having someone with a stable income history and a good credit reputation to co-sign your loan gives the lender security. Typically, for lenders, a cosigner provides reassurance of repayment to check losses. Your lender feels more comfortable and is more likely to approve your line of credit when you have a co-signer.
However, a co-signer does not just use his or her good credit and signature to help you get a personal line of credit. Your co-signer is legally bound to take responsibility for payments if you default on your payments. It’s important to choose wisely and ensure that your co-signer is on the same page with you.
Remember that your co-signer’s credit is also at risk if you fail to pay or pay late. He or she may have difficulty getting a loan in the future. Try as much as possible to avoid these situations.
>>>GET SMARTER: How to Get a Personal Line of Credit With No Job
4. Provide Collateral
If you don’t have a pay stub, W-2 tax form, payroll verification, tax return, or anything to show a steady income, providing collateral could help. What’s more important to lenders is recouping their investment—and if valuable collateral helps, the lender may not mind.
In this case, pledge an asset—real estate, home, vehicle, savings account, certificate of deposit, etc—to serve as security for the lender. A secured personal line of credit will likely have a lower interest rate than an unsecured personal line of credit, and this is to your advantage.
However, here’s the thing about using collateral to get a personal line of credit with no income: You must be prepared for the potential risk. If you can’t repay the loan, the lender may seize the collateral and sell it to cover the loss.
Conclusion
Not having income proof shouldn’t stop you from getting a personal line of credit to handle your financial obligations. To get a personal line of credit with no income proof, have excellent credit, have a low, debt-to-income ratio, get a co-signer and provide collateral.
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