Using a credit card responsibly is a great way to build credit, but it’s also possible to do it without one. If you’re new to credit or or just rebuilding your credit after a major life reset, these tips can help you build credit without a credit card.
But before you call me completely mad, I’d like to think that once you’ve built a respectable credit report and score, you’ll take advantage of some of the great credit card offers on this site.
Is this a “which came first, the chicken or the egg” story or, as we love to say in New England, “you cahn’t get they’ah from hee’ah”?
If you are someone who is new to credit or the U.S. or just rebuilding your credit after a major life reset like a spouse’s death, a divorce or a bankruptcy you may well not have any way to show a prospective lender that you can use credit responsibly. In other words, how do you get a credit history without one?
How to build credit without a credit card
5 ways to build credit without a credit card
1. Have your rent payments reported to credit bureaus
If you pay rent, you might ask if your landlord reports your rent payments to the credit bureaus. Your rent is likely to be your largest monthly expense and it makes sense to have it reported.
However, not all landlords report payments, so it is worth asking. If yours does not, you might look into paying your rent through one of the third-party rent paying services that will report your payments to the credit bureaus. Here are a few organizations that can work with your landlord to have your rent added to your credit report:
2. Get a credit builder loan
Do you have a bank account? If not, get one!
Along with a place to keep your cash, you can take advantage of some credit building products. Getting a debit card is a good way to not carry cash but still have access to your funds, but unfortunately, it will not have any impact on your credit score.
Why? Because you are using your own money. However, you can build your credit score by taking out a passbook or credit builder loan. This is a loan that you finance with your own savings. Just be certain that the loan will be reported to at least one or all three of the credit bureaus so you can get the benefit.
3. Add an overdraft line of credit to your checking account
If you have a checking account, you could add a line of credit as protection against overdrafts. Essentially an unsecured line of credit (LOC), this feature comes into play automatically if a check is presented for more money than you currently have in your account.
Instead of bouncing the check, the account draws on the LOC to pay the check. Depending on what your bank’s policy is, this LOC may also be reported to the bureaus. So again, just like with a passbook loan, you don’t need to incur any debt to get some positive reporting data.
4. Use tools that can improve your score
The last bit of banking information I wanted to share concerns two fairly new offerings in the credit scoring world that are especially helpful for those with thin or no credit files. These are Experian Boost and UltraFICO.
Both programs report your banking payment data to help your score. The Experian Boost program reports positive data drawn from utility payments like mobile phone and cable bills (and now, Netflix) that are paid from your checking account. UltraFICO also looks at your banking data, but is more interested in your account balances and activity. Both are free and you can opt in or opt out at any time.
5. Become an authorized user
Finally, if you really don’t think you can qualify on your own, you can ask to become an authorized user on someone else’s account who you know and trust (and who trusts you as well). You can benefit from that person’s good credit and build your score.
You can still get a credit card with thin credit
I also suggest that you look into a secured credit card. Yes, it technically is a credit card, but you are supplying your own credit, so I count it as a fancy passbook loan.
These cards are backed by an FDIC insured deposit you make to the issuer. You get a credit limit equal to or sometimes greater than your deposit and in many cases you get a Visa or Mastercard. Your secured card looks and works just like a credit card and no one will know the difference, plus it will report your activity to the credit bureaus.
As long as you make your payments on time, you will get positive data flowing into your credit report every month.
You can also look to retail store cards as a way to get a credit card of your own. These cards are generally easier to qualify for than a bank card and they will report to the credit bureaus. Who knows, you may get some discounts as well.
If you are successful in getting a card, be sure to use it responsibly. Make your payments on time and watch your credit utilization (how much of your available credit you spend). These are the two most important factors in your FICO score and will have the most impact on where you score goes from here.
Remember to keep track of your score!