Borrower Beware: Military Loans with No Credit Check
Find out what makes a credit check such an important part of borrowing money.
April 29, 2013 by Jake Butler
When searching for a short-term military loan, it's easy to get roped in by big promises and a flashy sales pitch, especially if you have bad credit. We know the drill – you need money and you need it fast. But is a military loan with no credit check really a good idea?
Before you sign on the dotted line, you need to make sure you fully understand what you're getting yourself into. If you're not careful, it could quickly become a financial nightmare. With some foresight and help from the guidelines below, you can successfully avoid the pitfalls that come with risky loans.
Your credit score is your financial report card and it's kind of a big deal
The biggest reason lenders want to check your credit score is to determine the amount of risk you pose. Whether it's a credit card or a car loan, the idea is to answer some basic questions – do you currently have any outstanding debt? Do you pay your bills on time? Have you ever defaulted on a loan in the past or had something repossessed because you couldn't pay?
It's a way for the lender to evaluate risk and avoid getting into a situation where the borrower might not pay back what they owe. The report itself doesn't say outright whether you're a good or bad risk, it just provides an unbiased look at the relevant records so the lender can make a more informed decision.
So how does it work? A credit report is formatted into three separate scores, called FICO scores, each coming from one of three independent credit bureaus: Equifax, Experian and TransUnion. Each score is somewhere between 300, the lowest possible, and 850, the highest. Most people fall between 500 and 799 – lower meaning you're seen as more of a risk and higher meaning you're deemed more reliable.
If you've made financial mistakes in the past – say you've paid some major bills late or not at all, or you've defaulted on a loan – your credit score will dip to reflect that. Conversely, as long as your lender reports to those credit bureaus, handling your loan responsibly by paying in full and on time could help you build credit. A good credit score doesn't happen by chance – it's something you have to earn by being responsible.
Doing a credit check is in your best interest – really!
Part of responsible lending means ensuring customers don't get in over their heads, taking on more debt than they can handle. It's best for the lender to consider all the information available and for the borrower to be open and honest in order to work out a deal that makes sense for both parties.
Part of the process is just basic math – finding your debt-to-income ratio. It means knowing how many open lines of credit you have and how much you owe to each one. Coupled with your salary range – your pay grade, which is based off your rank, no matter which branch you serve – a lender who checks your credit will know how much money you can reasonably afford to pay back.
That's what's missing in the process when there's no credit check involved. They don't care how much debt you have or whether it's even feasible for you to repay what you owe. They'll just keep piling on the debt.
Beware of the pitfalls
You may think a no credit military loan will mean more cash in your pocket, but that's rarely the case. The loans are typically smaller because the risk for the lender is greater. Further, they usually feature higher interest rates and higher payments, meaning your monthly bill could be way more than you bargained for or are capable of paying off.
Secondly, these kinds of lenders don't typically report to the credit bureaus. So even if you do well to manage your account and pay down your debt with regular, on-time payments, there's no benefit in the long run. Your credit score doesn't increase because the bureaus have no idea the loan ever happened and you miss the opportunity to potentially position yourself for more favorable loan terms in the future.
Skipping the credit check means skipping the opportunity for financial guidance
By law, you have the right to get a free credit report once per year, so you can check for inaccuracies and generally know what's going on with your credit score. It's in your best interest to check it out when you can. Any error could affect your ability to open a new line of credit or get a loan in the future, which is reason enough to take charge and check it out. You can obtain a copy for free at AnnualCreditReport.com, which is an authorized source supported by the Federal Trade Commission.
When you book a loan with Pioneer Services, you have the option to get a full credit history analysis, if you want it. We'll look over your credit report together and show you what you need to know, how to interpret what's presented on the report and provide actionable advice for possibly improving your credit score.
Further, as a responsible lender, we report to all three credit bureaus when you borrow from us. That means if you handle it responsibly and pay down your debt in a timely manner, it could help you build your credit score naturally so you don't have to resort to no credit check military loans in the future.