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How to Build Credit Without a Credit Card

Credit card companies are not the only ones that report your payment and usage history to the three credit bureaus (Experian™, TransUnion® and Equifax®). Did you know you can build credit without using a credit card? Read on for alternative strategies for boosting your score and adopting smart habits.

Know Your Score:

The first step in working to improve your credit score is knowing what it is to begin with. You can access free weekly credit reports from Experian, TransUnion, and Equifax without affecting your score through soft inquires. Another option is to contact AnnualCreditReport.com on their website or by calling 1-877-322-8228. While you should never give information to unknown people who call you, you should be prepared to share some identifying information when calling [X} as they need to verify it is you.

Repair Existing Credit Issues:

Paying off debts is a crucial step in improving a credit score. You can start by creating a list of all outstanding debts and prioritizing them based on interest or amounts owed. Timely payments on these outstanding debts not only reduce the amount owed, but also shows your financial behavior to credit bureaus. New credit users should maintain a low credit-to-debt ratio, under 30%, and ensure timely payments to build a positive credit history.

How to Approach Loans:

Paying off loans is a good way to show the credit bureaus that you’re becoming trustworthy and reliable. However, it’s important to proceed with caution, especially for individuals with lower credit scores who could be subject to predatory lending.  Predatory lending occurs when a potential borrower is misled into taking out loans they are unable to pay back reasonably or must pay back at a cost that is significantly above the going rate. No matter the size of the loan, it’s important to choose reputable lenders. Here are a few types of loans to consider:

  • Credit building: a loan taken out with the intent of paying it off to improve your credit. This can be an additional source of reporting your credit. It requires fixed payments to a lender and then getting access to the loan amount at the end of the loan’s term. Check out more details on Chelsea Groton’s Credit Builder program.
  • Car loans: available through banks, credit unions, and dealerships, and can be a helpful tool for obtaining a vehicle.
  • Personal loans: a type of unsecured loan that can finance goals like paying off debt, covering unexpected expenses, or home repairs.

Report Alternative Payments:

While reporting rent, utilities, or phone payments can positively impact your credit, linking personal bank accounts to credit bureaus for this purpose can be risky. It’s recommended to explore this option only if other avenues have been exhausted, as it can also drop your score further if there are no payments, and it can give credit bureaus access to see how you are spending your money.

Become an Authorized User:

As an authorized user, you have access to someone else’s credit card account but are not legally responsible for the debt. However, the risk is that the primary cardholder is still responsible for all cards linked to their name so you will need them to accept the risk. It’s important to remember, if the primary cardholder defaults, it hurts your score too so be sure to partner with someone who is reliable!

While the best option to get a top tier score is by using a credit card and obtaining a good credit mix, it is possible to improve your score without a credit card. Every method carries its risks and rewards, so it’s important to choose wisely. Commit to consistent, prudent financial behavior in order to navigate towards a stable credit profile. Interested in more advice on ways to improve your credit? Join us for a free Credit class at a branch near you, or online.

This blog post is for informational purposes only and no one method alone will increase your credit score. All loans are subject to credit approval.