5 ways to build credit without a credit card

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Using a credit card is one of the best-known ways to build credit, both for people just starting out and for those who want to improve their credit score. Secured credit cards (cards that are backed up with a bank deposit) are also an option, but not everyone wants to turn to credit cards for building credit. Fortunately, there are several ways you can build credit without a credit card. Here are five of those methods for you to try out. 

1. Become an authorized user

You might not want to get your own credit card, but you can still enjoy the benefits of credit cards by becoming an authorized user on someone else’s card. When someone allows you to become an authorized user, it means the credit card is in their name but you’re allowed to use it as well. An authorized user can be added without a credit check, so this is a great way to access credit without officially applying yourself.

And even if you personally never use the credit card, as an authorized user, you should still get all the benefits (and consequences) of the credit reporting that comes with the card. If your balance is paid on time and in full, this can positively build up your credit.

However, understand that the same is true for negative credit usage. If the credit card has missed or late payments, your credit will suffer. As an authorized user, make sure you trust the cardholder’s spending habits so you know their activity won’t negatively impact your credit. 

Allowing someone to become an authorized user on a credit card is a big request. As an authorized user, you can damage the cardholder’s credit or rack up a lot of debt. So you should have a strong relationship with the cardholder and a lot of trust in them before you ask them about being an authorized user. Most people turn to a parent or a legal guardian for this request. 

If you choose this route, make sure you confirm that the credit card reports activity for authorized users. Some credit cards allow authorized users but don’t report the credit activity for anyone other than the primary cardholder. 

2. Take out a credit builder loan

A credit builder loan is structured similarly to other installment loans, like a mortgage, personal loan or auto loan. When you take out the loan, you agree to pay fixed monthly payments. However, unlike traditional loans, a credit builder loan doesn’t give you access to the cash right away. Instead, the money is put into a savings account or a CD (certificate of deposit) account. When you’ve paid off the loan, you get access to all the cash and any interest earned. 

As you pay the loan every month, your payments are reported to the credit bureaus. So as long as you make on-time payments, you’ll see a positive move in your credit. 

Credit builder loans aren’t commonly offered at traditional banks but can often be found at credit unions. Most often, these loans are between $300 and $1,000. The obvious downside of this option is that you don’t get access to the money up front. However, for some people, this could be a good way to force savings for an upcoming large purchase while also building credit. 

3. Consider another kind of loan

Installment loans are probably one of the most common ways to build credit without a credit card. At some point in their lives, most people will need a car loan, personal loan, student loan or mortgage. These loans help people fund large purchases, and they can help build credit. Your payment history on installment loans is reported to the credit bureaus and can directly impact your credit rating. You can improve your credit score by building up a history of making on-time and in-full monthly payments on these loans. 

Typically, installment loans require a credit check for approval. If you can’t get approved on your own, consider asking a parent, partner or family member to cosign the loan with you. 

Note that many of these loans come with high annual percentage rates (APRs), so you shouldn’t take out a loan simply to build credit. Only consider this option if you can afford the loan and need the money for something useful. 

4. Make payments on time and in full

If you already have open credit accounts and loans, you must always make payments on time and in full. Every time you miss a payment or make a late payment, it can potentially show up on your credit report and lower your credit score. 

Late payments typically don’t show up on your credit report until a minimum of 30 days after you’ve missed a payment. This means that if you did miss a payment but can pay it quickly, it might not show up on your credit report. You might, however, incur late fees.

Many creditors that receive a late payment within 30 days of the initial due date choose not to report the transgression to the credit bureaus. If you miss a payment by more than 30 days or your lender decides to report you, that one missed payment can lower your credit score by dozens of points. Additionally, you’ll have a negative item on your credit report that can stay there for up to seven years. 

You can ensure you never miss a payment by setting up automatic payments whenever possible. Set up the automatic payment before the payment due date so that if something goes wrong, you’re notified and you have a few days to fix it. 

5. Look into rent or utility reporting

People with “thin” credit profiles or no credit often turn to alternative credit data to boost their credit rating. Alternative credit data programs, like ExtraCredit and Experian Boost, collect credit information from data resources that credit bureaus don’t typically look at. This can include data on rent, utility and phone payments. 

To go the alternative credit route, you’ll need to sign up for the program of your choice. After that, you’ll have to identify which of your payments can be accepted by the program. For example, if you want to report your rent payments, you or your landlord will have to sign up for the program and report your data. 

Note that not all lenders look at alternative credit data, so you may not see the benefits of this reporting with every single lender. Still, this is an excellent way to start while simultaneously working on building up traditional credit. 

Alternative credit works very similarly to traditional credit. If you make on-time payments, your credit rating will increase. However, late and missed payments can be detrimental to your credit health. 

Work on establishing your credit

Establishing your credit is essential to your overall financial well-being. A solid credit profile can open the door to many opportunities, including loan approvals, lower interest rates and better loan terms. In fact, your credit rating can sometimes aid or prevent you when acquiring a lease or a job. Clearly, your credit has a huge impact and should be a priority. 

People can have many reasons to opt for other ways to build credit without a credit card. If you know you’re someone who overspends, a credit card might not be a sound financial decision. Instead, consider which of the five options we mentioned above works best for you. Building good credit can take time, but it’s worth the effort. And as you build credit, start to focus on practicing sound financial habits. Always keep an eye on your payments and keep your credit utilization low. Check your credit reports and scores regularly to know where you’re at so you can adjust accordingly. If you notice something incorrect on your credit report, consider using the services of Lexington Law Firm for help with credit repair. 

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