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5 Ways to Build Credit Without a Credit Card

by Refi.me Staff on December 3 2021

Building good credit is an important aspect of your financial journey. It helps you get approved more easily for low cost mortgages and vehicle loans. It may also impact your ability to find a good rental apartment or set up new utility accounts.

Credit cards are generally the easiest and fastest way to build credit provided that you make all of your payments on time. As an added bonus, credit cards offer flexibility, shopping convenience, and a host of attractive rewards. However, you may have trouble qualifying for a card or you may not want one for whatever reason. In that case, you’ll have to explore other options.

Here are 5 ways you can build credit without a credit card:

#1- Make All Loan Payments on Time

Do you have student loans, a vehicle loan, mortgage or a personal loan? Making loan payments on time is the single best thing you can do to build credit fast.

Payment history has the biggest impact on your credit, accounting for 35% of your total credit score. Making all payments on time every month will slowly add points to your score, increasing it with every timely payment. It’s important to know that missed payments have the biggest negative impact on your credit score. One delayed payment can knock a few points off your score and will stay on your record for 7 years.

#2. Get a Credit Builder Loan

Taking on a loan just to build credit may seem contradictory but credit builder loans are meant specifically for this purpose. Credit builder loans work differently from other types of loans. In this case, the lender places the amount you apply for in a secure account. Unlike other loans, the amount is not given to you right away. It stays in the secure account, where you can’t access it. Instead, you make fixed payments every month till the full loan amount is paid off. You get the full amount from the secure account when you’ve paid off the entire loan.

Credit builder loans are usually offered by smaller financial institutions such as credit unions. The loan amounts are smaller too, typically ranging from about $300 to $1,000. The benefits of these loans include lower interest rates and easier accessibility to borrowers with poor or nonexistent credit. The downside is that you can’t access the funds till you’ve paid off the loan. This may not help you if you need the funds urgently. These loans are only useful if you have time to build credit and are not in urgent need of funds.

To build credit with a credit builder loan, like all other loans, it’s important to pay the bills on time every month. Even one late payment can damage your score.

#3. Become an Authorized User

Most credit card issuers allow cardholders the option to add one or more authorized users. Authorized users receive a physical supplementary card that gives them access to the main cardholder’s line of credit. As an authorized user, you can make purchases and payments just like the main cardholder. The overall card activity is reported to the various credit bureaus, allowing you to build your credit score without having a card of your own. It’s important to ensure that the card issuer reports activity for the main cardholder as well as the authorized user. Without this, you won’t get the credit building benefit.

The drawback to becoming an authorized user is that a lot depends on the main cardholder. If they miss payments or spend above the credit limit, it could end up damaging your credit score along with theirs. Only become an authorized user with someone who is financially responsible.

#4. Apply For a Secured Credit Card

A secured credit card is very different from a regular credit card. With this card you aren’t getting credit in the real sense of the term. The way it works is that you have to first create a fixed cash deposit. The secured credit card is issued against this deposit. Your credit limit is equal to the amount of the cash deposit. That means you can only borrow up to the amount you’ve deposited.

You can use your secured credit card to make purchases and payments just like a regular card, and a credit card statement will be sent to you at the end of each billing cycle. Paying the deposit on time every month will help to improve your credit score a few points at a time.

#5. Report Your Rent Payments

Payment history plays a key role in calculating your credit score. All credit reports contain entries regarding mortgage payments. Homeowners who make their mortgage payments on time benefit from higher scores. However, credit reports generally don’t include entries regarding rent payments. This is simply because landlords don’t bother to report this activity. This has historically left renters at a disadvantage.

If you’re looking at ways to build credit, request that your landlord report your rent payments to the credit bureaus. Consistent, timely rent payments can help boost your score within a couple of months. Unfortunately, you cannot report your own rent payments to the bureaus so you’ll have to rely on your landlord to do it.

Your Credit Building Success Depends on These 2 Factors

Regardless of how you choose to build credit, these 2 factors are key to your success:

  1. Timely payments You’ve heard this several times but it’s worth reiterating, making timely payments consistently is the best way to build credit.

  2. Low debtto-credit ratio – A low ratio means you aren’t using up all of your credit. This indicates that your finances are strong. Anything lower than 10% is great for your credit score. More than 50% will make it difficult to build credit.

Credit cards are a great tool for building credit. But you don’t have to wait to get one to get started. The five tips above will help you build credit without a credit card.

We hoped you enjoyed this article! Remember, you can and potentially lower your monthly student loan payments and save money.

The Refi.me team is always here to help you