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Building Credit Without Credit Cards - How to Do It

Establishing good credit is important in many aspects of life, but getting started can be difficult without a credit history. Whether you're just opening your first line of credit or trying to improve bad credit, taking steps to establish credit can be challenging.

If you don't have a credit card, you might be wondering how to build credit without a credit card. The truth is, there are plenty of ways to establish or improve your credit history. Here's a complete guide on how to build credit without a credit card.


How Do You Build Credit?

Your credit scores are determined by your credit history, which is a record of how you've used and paid credit in the past. Since this information is reported regularly to the major credit bureaus (Equifax, Experian and TransUnion), it's easy for lenders to determine whether or not you're likely to be a reliable borrower. If you have a steady pattern of repaying loans and credit accounts on time, you'll likely be rewarded with good credit.

Credit cards are the primary way to build credit history since they make up a significant portion of most people's total available credit limit. If you want to establish or improve your scores over time, paying your bills on time and keeping your balance low relative to your credit limits will help.


Can You Build Credit Without A Credit Card?

While a credit card is the most direct way to establish a credit history, you can still build your scores without one. In fact, learning how to build credit history without a credit card can greatly benefit you. Since there are many types of credit scores, you'll want to focus on building good credit history with each type.


The key to building multiple scores is to use different types of credit responsibly. Getting a credit card, taking out a car loan and opening a utility account are just a few examples of how you can build your scores.


Nine Ways To Build Credit Without A Credit Card

There are many options available that let you build credit without a credit card. Here are just a few ways to build credit without credit cards:


Sign up for a cashback rewards program

Cashback rewards programs allow you to earn cash for your everyday spending, and many of these programs report your good credit behavior to the major bureaus. Since these programs usually don't require a security deposit or credit check, just make sure you pay off your balance each month so you don't accrue debt.


Apply for an installment loan to build credit

While it may be difficult to get approved, applying for any type of loan will help your scores as long as you pay on time. Many borrowers have had success with unsecured personal loans from online lenders, and installment loans are especially useful since they have predictable monthly payments.


You can use installment loans to pay for something large, like a car or home renovation. This allows you to establish your credit history and quickly qualify for other types of loans if needed (home loans, auto loans, etc.).


Set up auto-pay with your utility company

Setting up auto-pay with your utility company is an easy way to show lenders you're a responsible borrower. For instance, if you set up auto-pay with your utility company, and make payments one day late for six months in a row, then your scores won't be affected.


If you do this over the course of a year, however, it will likely improve your scores since missing payments for several consecutive months is considered a negative credit behavior.


Find someone who will give you a co-signer

A co-signer is someone who agrees to take on your debt if you are unable to pay, so they're a great option for people with bad credit or no credit. If you have a family member or friend who is willing and able to help you out, just be sure that they understand the risk of cosigning.


Make sure the co-signer has good credit, and if possible, provide them with a copy of your credit reports and scores before you apply for any loans. This way they'll be able to see how their name will appear on your accounts and how lenders will view their relationship.


Apply for a store-issued credit card

Store-issued credit cards are a quick way to build your scores if you make timely payments on them. While store cards typically have high interest rates and low credit limits, they're easy to get and often don't require a security deposit. Just remember that the information provided by these cards doesn't help with your other credit accounts.

Stores like Target, Home Depot, Lowes and Walmart are just a few examples of retailers that issue their own cards. Since these cards typically have low credit limits, consider applying for several store-issued cards to increase your chances of approval.


Open a secured credit card

A secured credit card is a great option if you have bad or no credit since secured cards are easy to get and report to the major bureaus. Secured credit cards require you to put down a security deposit, which acts as collateral in case you default on your payments.

Once approved, this money will be used as your spending limit for the life of your account, and as long as you make payments on time, this number will increase over time.


Apply for a student loan

A student loan is another product that will help your scores, but it's important to keep in mind that not all student loans report to the credit bureaus. If you really want to establish a solid score history, it's best to apply for federal student loans since most of them are eligible for reporting.


You may also have luck applying for state-sponsored student loans that report to the credit bureaus. If not, consider applying for a federal loan while you look for other options (like private lenders).


Get a phone plan

A cell phone plan is another payment that can help your scores since most providers report to the credit bureaus. Just like with store-issued cards, your bills need to be paid on time every month in order for this information to get reported.


Some carriers, like AT&T and T-Mobile, use Equifax while Sprint and Verizon use TransUnion, so it's best to check with your provider and find out which bureau they use.


Become an authorized user on someone else's account

Becoming an authorized user on a friend or family member's credit card is another easy way to build the basic information needed to start scoring. Just keep in mind that this strategy doesn't work for everyone since not all lenders report this activity to the credit bureaus.


Anytime you agree to become an authorized user, it's important to ask the card issuer if they report the information to the credit bureaus. If not, ask about other options that can help you build your credit history and scores on your own.


Don't ever agree to become an authorized user for a lender or business that doesn't report this activity because it could backfire and impact your credit score.


Additional Tips On How To Build Credit Without A Credit Card

Building credit without a credit card is easier than you think. There are several things that can help your scores as you wait for the good stuff to happen. Here's what you can do:


Be sure to review all of your credit reports and make any necessary corrections.

You'll want to fix any mistakes with your information since this can have an impact on your scores. Remember that it's typically only the negative information that will impact your score, so be sure to stay on top of all of your bills and payments.


Always pay your bills on time, and never max out your credit cards

If you want to build your credit, then you need to avoid maxing out any of your accounts. This makes it harder for lenders to trust you with additional borrowing power because they think that the money could be used elsewhere. Establishing a good payment history is essential for building your scores, and if you want to have access to credit cards with higher limits, then you'll need to demonstrate that you can use the lower-limit products without getting into trouble.


Don't open too many accounts at once

It's a great idea to continually look for new ways to prove yourself as a worthy borrower, but opening a bunch of new accounts at once could make it difficult to establish your creditworthiness. In addition to being risky, this strategy won't work very well since you'll only be able to use one or two products before lenders start asking for more information about the others.


Instead, focus on the accounts that are bringing you the best benefits and only apply for new products when it makes sense to do so.


Remember to review your credit reports regularly

Once you have access to credit card accounts, be sure to monitor your credit reports regularly. This is a great way to see how lenders view your financial history since they are providing this information to credit reporting agencies.


If you find any errors on your reports, be sure to dispute them as quickly as possible so that they can be removed in a timely manner. This is one of the best ways to restore accuracy and ultimately improve your scores over time.


Frequently Asked Questions

Do debit cards affect credit scores?

Debit cards don't affect credit scores since they aren't linked to any lenders. However, debit cards can still help you build credit since they report your payment behavior to the major bureaus. If you're looking for a good option, consider opening an account with one of the big banks, like Chase or Bank Of America.


How do rent payments affect my credit score?

Rent payments affect credit scores in much the same way as mortgage payments. Typically, if you live by yourself and pay your rent on time, most landlords will report this information to the major bureaus. Since rent is often an unpredictable expense for many people, paying your rent every month can help with credit building since it's considered a positive payment behavior.


Can I build credit without a credit card?

Yes, debit cards and prepaid credit cards can help you build your credit score. Rental payments, utility bills, cell phone bills and installment loans also do the trick.

If you have bad or no credit, a secured card is one of the best ways to build it up over time. Since these cards require a security deposit that's usually equal to your credit limit, this is a great way to start building credit if you don't have the money to make large purchases.


How do I know if I have a credit score?

Since credit scores are generated by the major bureaus, you can easily request one copy of your report for free each year. This way you can check to see how lenders view your payment behavior and if possible fraud is present on any of your accounts. You can also monitor all three of your reports for any changes or inaccuracies to ensure that the information is correct.

Learn more here.