Credit cards are a great tool for building credit. They’re easy to use, offer flexibility, and sometimes even reward you for using them. Most also directly impact your credit score and are used by many people to begin building their credit profile.
But what if you don’t want a credit card or are having trouble qualifying for one? Don’t worry. There are plenty of other ways to build a strong credit history. Here are ten options for building credit without a credit card.
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. With ExtraCredit, you can use the service to add bills not typically reported to the bureaus and get credit for bills you’re already paying. We help strengthen your credit profile by adding your rent and utility payments as tradelines to your credit reports with all three credit bureaus. Continue paying those bills on time, and rent reporting can help you add more to your credit history and help you work your way up to a good credit profile.
2. Authorized User Status
Authorized user status is a great way to begin building credit—as long as you and the primary cardholder are on the same page. You can use the primary cardholder’s credit card and piggyback off their credit card activity as an authorized user. Even if you never use the card, card activity can still be used to positively impact your credit. You’ll want to verify with the credit card company that they report card activity for authorized users. Otherwise, you’ll be wasting your time.
This method comes with some risks, though. Your credit report will reflect how the card is used, even if you’re not the one using it. If you or the primary cardholder racks up an excessive balance or misses payments, that activity could end up damaging your credit instead of helping it. Only become an authorized user if you are both committed to practicing smart credit-building habits.
3. Credit Builder Loans
Credit builder loans aren’t widely publicized, but they are a great way to build credit without a credit card. Smaller institutions like credit unions are generally more likely to offer credit builder loans specifically to help borrowers build credit.
Typically, you borrow a small amount, put it into a CD or savings account, and held it until the loan is paid off. You make payments for a set amount of time until the loan is paid. At that time, you can access the funds, including any interest earned from the savings account. And if you’ve made all your payments on time, you’ve been successfully building your credit all along.
These loans often have low interest rates and are accessible to those with poor or nonexistent credit. That’s because you provide all of the collateral for the loan in cash, so it’s not a risk for the lender. Credit builder loans aren’t great if you need the money now—since you need to pay off the loan before you can actually access the funds—but if you have time to build up your credit, they’re a great place to start.
4. Passbook or CD Loans
Like credit-builder loans, some banks offer passbook or CD loans 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. Ensure your bank will report payments to the three major credit bureaus before opening this type of loan.
5. 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. Still, 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.
6. 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.
7. 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 your credit history and will just end up costing you money in the long run. Alternatives like OppLoans report payment history to the credit bureaus, but their rates are typically higher than traditional personal loans.
8. 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 risk 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.
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 homeownership and the possibility of building your credit with a mortgage, you have options. First-time homebuyers may consider 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.
Most credit reports do not contain entries regarding your rent payments simply because landlords don’t bother reporting that activity. But credit bureaus will incorporate timely rent payments into your credit report if that information is submitted to them. If you’re evaluating a rental or currently renting, ask the landlord if they will report your rent payments. You might also be able to use online rent payment applications to ensure this information is reported.
Want to get credit for your on-time rent payments? Sign up for ExtraCredit. Our unique Build It features 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.
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.