How to build credit without a credit card? Good credit history is essential when it comes time to buy a car or a house, rent an apartment or manage other financial operations. Although using a credit card can help you establish your credit history, it is not the only option. Here are some excellent ways to build credit without using a credit card. Continue reading Hanfincal article below.
1. 13 Ways to build credit without a credit card
How to build credit without a credit card?
1.1. Report rent payments
Unlike mortgage payments, which can help build a strong credit history, on-time rent payments are not automatically reported to credit bureaus. You can, however, ask that they be reported.
One option is to request that your landlord directly report your positive payment history to credit bureaus. Another choice is to use a third-party service to assist with transferring information to your credit report if your landlord does not.
These businesses confirm your rent payments with your landlord before reporting them to credit bureaus. It has been shown that doing so raises VantageScore scores by an average of 29 points. However, rent payments are not used to calculate FICO scores; your payment history will generally strengthen your credit.
Remember that you may be required to opt-in (at no additional cost) to monthly credit reporting. It will not be done automatically by all services. Furthermore, even if your rental payment history is on your credit report, not all credit-score models will take it into account.
If you are an authorized user on another person’s credit card, the issuer will send you a card with your name on it. The credit card company holds the primary account holder, not the authorized user, responsible for paying charges on the account.
This allows you to make purchases and report your overall card activity to credit bureaus without applying for a card yourself. It’s worth noting, however, that if the primary cardholder fails to make payments or spends more than the credit limit, your credit will suffer as well.
1.3. Get a secured credit card
Although this is technically a credit card, it may be a useful tool for quickly building credit. A secured credit card may be obtained by almost anyone with any credit score: good, poor, or no credit score. This deposit generally equals your available credit, thus a $100 deposit will earn you $100 in credit, $200 will get you $200, and so on. Secured cards allow you to make purchases and payments, and some even provide cash back or other incentives.
The goal of a secured credit card is to grow your credit to the point that you can apply for an unsecured card, which does not need a deposit and offers superior perks.
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1.4. Build credit with a loan
1.4.1. Get a credit builder loan
Credit-builder loans are a one-of-a-kind way to build credit without using a credit card. Instead of borrowing and spending money to improve your credit, you can improve it by saving money.
This is an excellent way because you make regular payments while not spending any extra money. Moreover, all payments are reported to the credit bureau, which helps to improve your FICO score.
When applying for a credit builder loan, the lender deposits the entire amount — usually from $300 to $1,000 — into a secure account. But, you do not have immediate access to the funds. Instead, you have to make a fixed payment every month until the loan is paid off in full, at which point you receive the total amount back.
1.4.2. Personal loans
Unsecured personal loans are available from some lenders to people with no or bad credit. These entail borrowing a fixed amount of money and making fixed monthly payments. Moreover, you are almost certainly charged a higher interest rate if you do not have a long credit history. You might be able to get a co-signer to increase your chances of getting approved for lower rates.
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1.4.3. Auto loans
Because auto loans are typically large sums of money, most traditional auto loan dealers report all of your payments to credit bureaus. Auto loans are also less risky for lenders than unsecured loans because they are secured by the vehicle. That means you might be able to qualify for them even if your credit isn’t perfect—though at a higher interest rate. However, if you make your loan payments on time, you may be able to raise your credit score and refinance later.
1.4.4. Federal student loans
Most federal loans do not require credit checks, making them an excellent way to build credit from scratch. Because your federal student loan payments are reported to the three credit bureaus, making payments on time every month will help your credit score, and adding a student loan to your credit history will help your credit mix as well.
Taking out a student loan to build credit is not a good idea, but if you must, it’s also an effective way to build credit without a credit card.
Federal student loans
1.4.5. Passbook or CD loans
This is another innovative way in building credit without a credit card that works similarly to credit builder loans. Some banks offer CD loans or passbooks to existing customers who have a CD or savings account balance. As you pay down the loan, you build credit, and once the loan is paid off, you can access your balance. This is pretty different from credit builder loans because they use funds you already had in savings as collateral. Interest rates are lower than those found on credit cards or unsecured personal loans. Before applying for this type of loan, ensure that your bank will report payments to the three major credit bureaus.
Besides, many lenders now understand that student loans, auto loans, and personal loans are only the tip of the credit iceberg. Therefore, they are frequently willing to consider alternative payment data to assist in developing your credit score.
1.5. Repay an existing loan
Existing loans such as student loans, auto loans, and car loans are all factors in your credit score, so it’s important to make on-time payments consistently. You can build a strong credit score when you pay your loans on time and in full each month.
1.6. Other ways to build credit with no credit card
1.6.1. Have a phone plan
Having your phone account listed on your credit report can help you build your credit history. Once you add this account, your on-time payments will be factored into your FICO score. Late payments, which quickly lower a credit score, will not be considered as long as the account does not become so delinquent that you default and the debt is assigned to a collection agency.
Have a phone plan
1.6.2. Make payments on time
Of course, if your credit performance is good, including making all payments on time, your credit will be improved. This is the best way to enhance your credit. You not only avoid any cash penalties or APR increases, but you also demonstrate the pattern of financial consistency that credit agencies seek.
1.6.3. Keep your credit utilization low
When evaluating your credit request, lenders and creditors consider several factors, including your credit utilization (debt-to-credit ratio). If your ratio is high, it may indicate that you are a higher-risk borrower who may have difficulty repaying a loan because you have more debt. In general, lenders and creditors prefer a 30% or less debt-to-credit ratio. The lesser your utilization, the higher your score will be.
1.6.4. Maximize your credit history
The longer you have a track record of making on-time payments and keeping your debt under control, the higher your credit score. However, your history is frequently limited if you are starting to build credit or are recovering from recent financial difficulties. Report as much information as possible to help jump-start your credit score, from rent and student loan payments to vehicle and personal loan details.
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2. Why do you have credit scores without credit cards?
You can have a credit score without having a credit card if you’ve taken out a loan, had your rent payments reported to the credit bureaus, or fallen behind on other bills.
This is because a credit score is simply a summary of the information contained in your credit reports. Credit reports also include information about other loans and lines of credit you’ve used and any credit card accounts you’ve had in the last seven years. So, even if you’ve never used a credit card, you could have a credit score if you’ve borrowed money or failed to pay some essential bills.
How to build credit without a credit card? More than ten ways above can help you shape your understanding of where to begin and what to do first. Remember that credit cards can help you improve your credit score, but credit card debt is never required to build credit. Hanfincal hopes to assist you in your credit-building journey.
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