How to Build Credit without a Credit Card: 6 Best Ways

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Credit cards are not the only option in building your credit score. Learn how to build credit without a credit card with these simple steps.

According to Experian, the total American credit card debt for Q3, 2020 stood at $756 billion. This was after an outstanding 9% drop from $829 billion in 2019. Experian also found out that an average American holds at least four credit cards.

These statistics show just how credit cards are a popular means of getting credit. Generally, people use credit cards to help build their credit score, as it seems like the easiest way.  However, this isn’t true! These cards attract interest rates that can lead to a downward financial spiral if not used well.

That’s why we are giving you an option. We want to show you exactly how to build credit without a credit card. So, if you are tired of unending credit card debts, these tips might be just what you need.  

Tips on how to Build Credit without a Credit Card

credit card payment

1. Use Experian Boost

While your payment history is a significant factor in determining your credit score, your utility payments are usually not included. However, all this can change with Experian Boost. This is a free service that helps consumers include their utility payments for their credit score calculations.

With Experian Boost, most of your monthly bills payments, including utility (electricity, gas, and water), cable, internet, cell phone, and even Netflix subscriptions, can help improve your credit score. According to their website, the service is free to join, and an average user can get a boost of at least 10 points to their credit score.

The great thing about the service is that it only reports the positive payments, leaving out late or negative ones. This way, even a late payment doesn’t taint your score.

So, instead of amassing credit card debt to build your credit score, your monthly bills payments become your way out.

2. Utilizing a Credit-builder Loan

These are loans designed to help you prove your loan payment ability as you build your credit score. Credit-builder loans work in a reverse mode as traditional loans. Instead of applying for the loan and getting money into your account, this money is locked until you finish paying the installments.

The whole process acts as “training wheels.” You can’t access the money advanced to you until you prove your repayment capability. It helps in creating a saving culture as you save in installments to receive a lump sum at the end of the period.

Usually, your bank or financial institution credits a certain amount of money into your savings account (up to $2,000). You then start paying monthly installments until you clear the loan. Once the loan is cleared, the bank unlocks your loan, and you can now access the money.

With credit-builder loans, you’ll not only be building your credit score but also learning how to save and also commit to certain goals. You can easily get these types of loans from banks, community banks, credit unions, etc.

3. Use Your Rent Payments to Build Credit

Just like with utility payments, rent payments do not automatically appear on your credit score calculations. This is unlike mortgage payments for homeowners.

However, they can be included at your request. If you want your rent payments to positively impact your credit score, you can request your landlord to submit your rent payment history to the credit agencies.

Alternatively, there are numerous platforms that can also help you submit your rent payments to the bureaus. Some of the best platforms in submitting your rent payment history include Rental Kharma, RentReporters, RentTrack, or PayYourRent. So, for a renter trying to figure out how to build credit without a credit card, your rent payment is all you need.

These third-party platforms will, however, require verification from your landlord, plus a small service fee. For instance, RentReporters requires a one-time account setup fee of $94.95, plus a monthly fee of $9.95. Rental Kharma, on the other hand, has an account setup fee of $50 (one-time) and a monthly fee of $8.95.

If your landlord can send the reports directly to the agencies, it would be best! If not possible, the third-party services can serve you well.

4. Become an Authorized User

Becoming an authorized card user is one simple way to build your credit score without having a credit card under your name. This option allows you to be included as a user on another person’s credit card, mostly a family member.

As an authorized user, you enjoy the positive payment history of the primary user, as it’s included in your credit history. However, if the primary user doesn’t make prompt payments, your credit score is also dented. Therefore, ensure you choose wisely.

The good thing with this option is that you don’t even need to have a physical card yourself. But, your activities on the card also matters. Therefore, ensure you agree with the primary cardholder on how to use the card, including how to make the payments.

5. Pay Your Loan Installments on Time

You might be wondering how to build your credit score while you already have a loan you are servicing. Now, ensuring that you make prompt payments on this loan is the first easy way to keep a positive rating and even grow it further.

Whether you are repaying a student loan, an auto loan, or a personal one, prompt repayments will affect your credit score positively. On the other hand, late payments will taint your credit.

Therefore, if you have an existing loan, start with making on-time, full payments every month, and you are on your way to building strong credit.

6. Utilize Federal Student Loans

student loans

While most students will avoid the burden of taking a student loan, having one might be more of an opportunity than a burden. This is because all payments towards federal student loans will be reported to the credit bureaus.

If you are making on-time payments, it means that you are building your credit score. So, by the time you are through with the repayments, your credit rating will be better than a person who never took the loan.

However, you should be careful not to miss repayments. Late payments will hurt your credit score. Therefore, if you want to start building your credit early, you can apply for that student loan and lay a strong foundation for your credit future.

The good thing with these types of loans is that most of them won’t do credit checks. This means that they are the best type of loans for first-timers or those starting from scratch.

There are four types of student loans you can qualify for, including Direct Subsidized, Direct Unsubsidized, Direct PLUS, and direct consolidation loans. And, the steps to getting the loans are simple.

See related: 12 Reasons Your Debit Card Declined (How to Fix)

How Fast Can You Build Credit from Scratch?

Knowing how to build credit without a credit card is great. However, this question will also pop up; how long does it take to build credit from scratch?

Well, the truth is this is not a one-day process. Generally, it will take you around six months to establish your first credit score from scratch. However, you should also use those six months wisely to ensure you build a strong credit foundation.

Note, repairing a tainted credit score will be harder than establishing a new one. Also, getting a good credit score will take longer than those six months. This means that you have to be quite patient.

But is there a way to attain a good credit score faster? Certainly yes! While the first six months might be constant, displaying behaviors that impress lenders might help shoot up your credit score earlier than you anticipated.

Check out these tips:

Tips on how to Build your Credit Score Faster

  • On-time Bills Payment

On-time bills’ payment positively impacts your credit score. On the other hand, late payments dent your credit score history. Therefore, always ensure that your payments are never late (past the due date).

  • Use your Card Sparingly

Don’t go overspending on your credit card. In fact, if you can keep your purchases below 30% of the card’s available limit, it will positively boost your credit score. The closer you get to your maximum spending limit, the more it hurts your credit score. Overspending is also a red flag to the lenders and thus should be avoided.

  • Keep your Credit Card Accounts Open

Don’t keep a credit card you are not using. You should remember that you are striving to build credit. Therefore, if you open a credit card account, use it, but use it wisely. Keeping those accounts active has a positive impact on your credit.

  • Loans Variety

Having several loans that you repay on time is the best way of proving your repayment capability to the lenders. Therefore, don’t stick to a single loan, while you can service a few. Apply for several loans and ensure that installments are paid on time.

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