How to Build Credit Without a Credit Card
Having a good credit score is essential for many aspects of life, from getting approved for loans to renting an apartment. However, building credit can be challenging if you don’t have a credit card. Fortunately, there are several other methods you can use to establish and improve your credit without relying on plastic. In this article, we’ll explore various solutions that will help you build credit without a credit card.
Make Timely Payments for Rent and Utilities
Paying your rent and utility bills on time is one of the easiest and most efficient ways to build your credit score. Many landlords report payments to the credit bureaus, which means that paying your rent on time can positively impact your credit score. Similarly, timely payments for utilities like electricity, water, and phone bills can build your credit by showing that you’re a responsible borrower.
One way to stay organized and avoid late payments is to set up autopay. Most banks and financial institutions offer this service, which will automatically deduct your bills from your checking account on the due date. Alternatively, you can use budgeting apps like Mint or EveryDollar to keep track of your bills and due dates.
Get a Secured Credit Card
If you’re unable or unwilling to get a traditional credit card, a secured credit card may be a good alternative. A secured credit card requires a deposit, which acts as collateral for the credit limit. This deposit is usually equal to the credit line and can range between $200 to $2,000.
The benefits of using a secured credit card include improving your credit score, establishing credit history, and gaining access to credit (albeit a small amount). However, there are drawbacks. You’ll need to pay a deposit and annual fees, and interest rates on secured credit cards are typically higher than traditional credit cards.
To use a secured credit card effectively, you should make timely payments and keep your balance low. Ideally, you should pay off the balance in full each month to avoid interest charges.
Become an Authorized User on Someone’s Credit Card
An alternative to getting a credit card on your own is to become an authorized user on someone else’s card. This means that you can use someone else’s credit card as if it’s your own, without being primarily responsible for the bill.
The benefits of being an authorized user include building credit history and access to credit. However, there are drawbacks. You rely on the primary cardholder to make payments on time, and if they fail to do so, your credit score can be negatively impacted.
To become an authorized user, you’ll need to find someone who is willing to add you to their credit card. This is most commonly done by family members or significant others. Before being added to someone’s card, make sure they have a history of responsible credit use and timely payments.
Use a Credit Builder Loan
A credit builder loan is a type of loan where the lender holds the funds in a savings account or CD. You pay back the loan over time, and once it’s paid off, you receive the funds and build credit in the process.
The benefits of a credit builder loan include access to credit history and possible improvements to your credit score. However, there are drawbacks to consider. You’ll need to pay interest and fees, and not all lenders report payments to all three credit bureaus.
If you decide to use a credit builder loan, make sure to do your research and find a reputable lender. Credit unions and community banks are good places to start, as they tend to offer better rates and terms than traditional banks.
Apply for a Credit Card with Your Bank or Credit Union
Building a relationship with your financial institution can be beneficial in many ways, including helping you get approved for a credit card. Many banks and credit unions offer credit cards for people with no credit history, although the terms may vary from traditional credit cards.
When applying for a credit card, be prepared to provide documentation of your income and employment history. You may also need a co-signer or a deposit for secured credit cards. To improve your chances of being approved, consider applying for a card with a low credit limit and making timely payments.
Use Alternative Credit Reporting Methods
Alternative credit reporting methods are platforms that allow you to add non-traditional credit sources to your credit report. For example, Experian Boost allows you to report your on-time payments for phone, utility, and streaming services. UltraFICO takes into account your banking history, including savings and checking accounts.
The benefits of alternative credit reporting methods include building credit history based on non-traditional sources and the potential to increase your credit score. The drawbacks include that not all lenders accept alternative credit reporting, and some services may come with fees.
Use Credit-Building Apps
There are several credit-building apps available that can help establish and improve your credit without a credit card. For example, Level Money helps you manage your money and offers personalized advice on achieving your financial goals. RentTrack allows you to add rent payments to your credit report. CreditStacks is a credit card that is designed specifically for people who have recently moved to the U.S. and don’t have a credit history.
The benefits of credit-building apps include convenience, personalized tips and advice, access to credit and lease history. The drawbacks include fees, not all services are available in all locations, and the quality of service may vary.
Conclusion
There are a variety of ways to build credit without a credit card. By paying rent and utility bills on time, using a secured credit card responsibly, becoming an authorized user on someone else’s credit card, using a credit builder loan, applying for a credit card with your bank or credit union, using alternative credit reporting methods, and using credit-building apps, you can establish and improve your credit score.
