How to Build Credit Without a Credit Card

Having a good credit score can open many opportunities, such as being approved for better rental situations, getting better interest rates on loans, and even getting the money you need to start a business. You may find yourself stuck if you have no credit or bad credit.

Many people say to get a credit card in such a situation to start building credit. But you may be unable to do that or not want to. Here’s how to build credit without a credit card.

In This Piece

• Can You Build Credit Without a Credit Card?
• What Are the Different Types of Credit?
• 11 Ways to Build Credit Without a Credit Card

Can You Build Credit Without a Credit Card?

Credit cards are a common way to begin building credit if you have no credit history because they’re often easier to obtain than other lines of credit. That’s especially true if you apply for a secured credit card, which requires you to make a deposit up front to secure your credit limit.

However, there are other ways to build credit and improve your score, and there are many reasons people avoid credit cards. They may have issues qualifying, find the fees and terms too expensive, or be wary of cards after seeing others use them incorrectly. While building credit from scratch without credit cards can require more finesse, it’s possible.

What Are the Different Types of Credit?

Credit refers to any money you borrow and pay back later. This benefits borrowers by letting them use the money immediately instead of waiting to save it, and lenders benefit by charging interest. Most credit falls into two main types:

11 Ways to Build Credit Without a Credit Card

Understanding how credit works can help you know how to build credit without a credit card. We’ve provided 11 potential options for doing so below.

1. Credit-Building Loans 

Credit builder loans are a tool designed to help you build credit. These loans are more about building credit than getting money right now for a need you might have. They work best as a proactive credit-building tool before you might need to borrow money for another purpose.

Typically, you borrow a small amount, which is put into a CD or savings account and held until you pay off the loan. You make payments for a set amount of time until the loan is paid. At that time, you can access the funds in the account, including any interest earned from the savings account. 

These loans often have lower interest rates than other types of bad-credit or no-credit loans and are accessible to those with poor or nonexistent credit. That’s because you provide all the collateral for the loan in cash, so it’s not a risk for the lender. 

2. Pay Attention to Your Credit History

Pay attention to your credit report to ensure all the information is correct. An incorrect negative payment mark or balance could impact your payment history or credit utilization. Both of these play an important role in determining your credit score.

Check your credit reports regularly, and go through the process of disputing any information you think might be incorrect. You can get a free copy of your credit report from all three major credit bureaus at AnnualCreditReport.com. 

3. Pay Your Bills on Time

One of the most important things you can do if you want to build your credit is pay all your bills on time. This is especially true if you have auto loans, mortgages, student loans, or other types of credit that are being reported to the credit bureaus. 

Missing payments or making payments late brings down your score substantially. Ensuring you make payments on time helps you maintain your score and start to build it over time. 

If you don’t have many credit accounts to show good payment history, you may be able to get other bills reported to begin building your history. Try asking your landlord to start reporting your rent payments, or sign up for a credit-building program that lets you report utility and other payments. 

4. Get Added as an Authorized User

You don’t have to have a credit card to get the benefits of one on your credit report. If you have a friend or loved one with good credit and good standing with their credit card company, they might be able to add you as an authorized user on their credit card account. 

First, they should ask their credit card company if it reports credit items for authorized users. If the card doesn’t report for authorized users, the information won’t get added to your credit report. 

If the card does report for authorized users, then your friend or loved one’s timely payments and good credit utilization rate help improve your score. Obviously, you only want to do this with people you trust to manage their credit well. Otherwise, late payments and poor credit utilization can negatively impact your score.  

5. Use ExtraCredit

The easiest way to start building your credit without getting a credit card is to sign up for ExtraCredit® and add your rent and utility payments to your credit profile. You can use this service to add bills not typically reported to the bureaus so you can get credit for what you’re already paying. 

You can also check your credit, keep an eye on your credit score and get information about offers you might qualify for. When you successfully apply for offers through ExtraCredit, you can even earn some cash back!

6. Passbook or CD Loans

Similar to credit-builder loans, passbook or CD loans are offered by some banks to existing customers using the balance you already have in a CD or savings account. You build credit as you pay down the loan, and you can access your balance once the loan is paid off. These are very similar to credit building loans, but they use funds you already had in savings as collateral. Interest rates are typically much lower than credit cards or unsecured personal loans as well. Make sure your bank will report payments to the three major credit bureaus before opening this type of loan.

7. Peer-to-Peer Loans

Peer-to-peer loans are made by an individual investor or groups of investors instead of traditional financial institutions, with the accrued interest going back to the investors. While they may sound sketchy, P2P loans are completely legitimate and can be set up through a reputable P2P service like LendingClub—unlike borrowing money from your cousin.

P2P loans will typically accept borrowers with lower credit scores than traditional lenders, but their credit requirements and interest rates will vary depending on the lender—and their rates and fees may be higher than other personal loans. Before you take out this type of loan, ask whether the service reports your timely payments to the credit bureaus so you can get a positive impact on your score.

8. Federal Student Loans

If you’re a student looking to build credit, you may consider a federal student loan. Most federal student loans don’t require any credit history. Private options, on the other hand, often require good credit scores or a cosigner. Don’t take on student debt just to build your credit, but if you’re already considering a student loan, they could be a good way to get started. Federal student loans show up on your credit report, and if they’re paid on time, they can help you build a positive payment history.

9. Personal Loans

Some lenders offer unsecured personal loans to individuals with no or bad credit. These involve borrowing a fixed amount of money and making fixed payments every month. If you don’t have an established credit history, you will likely be charged a higher interest rate. You may be able to get a co-signer to help your odds of approval for lower rates.

Don’t bother with payday loans. These will not help you establish credit history and will just end up costing you money in the long run. Alternatives like OppLoans do report payment history to the credit bureaus, but their rates are typically higher than traditional personal loans.

10. Auto Loans

Most traditional auto loan dealers report all your payments to the credit bureaus. And since auto loans are secured by the vehicle, they’re less risky for the lender than unsecured loans. That means you might be able to qualify for them even if your credit isn’t stellar—though that might come with the expense of higher interest. If you make your loan payments on time, you might be able to positively impact your score and refinance later, though.

11. Mortgages

Getting a mortgage with no credit history is difficult but not impossible. If your goal is just to start building credit, a mortgage may not be the best place to start. But if you’re ready for home ownership and the possibility of building your credit with a mortgage, you have options. First-time homebuyers may consider an FHA mortgage, for example, which is available to individuals with a thin credit file. Smaller lenders like credit unions tend to be more flexible and may help you qualify for a mortgage as well.

Your credit score might take a hit when you first assume a huge debt, but it will rise over time with regular monthly payments. Concentrate on making those payments on time to continue building your credit.

Keys to Building Credit

Whatever option you choose to build credit without a credit card, you must make payments on time consistently. Late payments deal severe damage to your credit score. Avoid financial obligations that put you at risk of making late payments or defaulting.

You also need to keep in mind your account mix. If you only have installment loans and no revolving credit such as credit cards, you won’t have an ideal account mix. Account mix makes up about 10% of your credit score.

Your credit utilization ratio—or the amount of credit you have tied up in debt—might also suffer if you have no credit card or other form of revolving credit. However, in most cases, no credit utilization is better than high credit utilization.

Ready for a Credit Card?

If you’re ready to try building your credit with a credit card, try a secured credit card. These cards are often available to people with bad or no credit, and they typically start with smaller credit limits that can help you learn responsible money management habits.

Want to get credit for your on-time rent payments? Sign up for ExtraCredit. Our unique Build It feature will submit rent and utility payments to the three credit bureaus on your behalf, so you can get credit for paying those bills on time. In fact, we’ll look for your past payments to make sure they are submitted so you get credit for previous rent and utility payments as well.

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