Building Your Credit Without a Credit Card
Having a good credit history is crucial in modern times. It comes in handy, and is sometimes necessary, while renting a home, buying a car, setting up new utility accounts, or even while making relatively smaller purchases like a cell phone. Having a low or no credit score is not useful but it is not all bad news. There are multiple ways to repair, or build from scratch, a good credit score. While credit cards are considered to be the primary mode for doing so, the lucky truth is that only a small portion of an individual’s credit score comes from these. Anyone who cannot, or doesn’t want to, have a credit card can still build a great credit score.
Start by becoming an authorized user
For those on the starting point of building a credit score, or for anyone not yet eligible for their own credit card, one of the easiest ways to build credit is to become an authorized user on the account of a loved one. This is where you also get a card and can make charges on the account, while the ultimate responsibility of the repayments stays with the original account owner. By doing this with someone who already has a good credit score, the card’s activity will be reported on both your accounts and you will get to build your own credit.
An off-shoot of this approach is also to get a co-signer. Getting a home loan or an auto loan is an excellent way to start building your credit history. But if you find it difficult to get a loan for yourself because you don’t have a credit history, you can get someone else to co-sign your application for a loan. Then when you make your payments on time, your credit score builds up. However, in both these cases, do remember that when you ask someone else to take your responsibility, you in turn are responsible for their credit score as well. So be mindful of the risks while choosing the account owner or a co-signer and be careful with your own payments as well.
Start paying your bills on time
There must be something that you owe to some credit authority. It may include a car loan, student loan, possibly some medical debt, or another form of personal loan you borrowed. One of the easiest ways to build credit scores is to start paying the due amounts on time. Every transaction that you make on an installment loan is reported on your credit report, and just like a late or missed payment can make your credit score bad, a timely payment can push it back up.
Here, you can also make use of certain rent reporting services and include your utility payments in your credit history. If you are a regular and timely payer of your utility bills, that can also help you in building credit.
Get a store card or a student card
This is an even quicker method of building credit and is also good practice for those who eventually wish to have a credit card. Even if you don’t have a branded credit card, many retailers and gas stations are willing to provide you with their own store cards. All you need to do is to ensure that you don’t end up buying more than you would if you were using cash. To make the score even better, clear the entire month’s bill lump-sum at the month-end and ask the card issuer to report your credit history to the credit bureaus.
Likewise, student cards are also made with the intention of training and helping young borrowers with their credit history. However, since these student cards are not meant to be the formal borrowing channel, they usually come with a lower credit limit and a higher interest rate. This option is better left only for those who are confident of their repayment ability on these cards, without having to sacrifice other monthly payments. Because missing out on other payments may even out or possibly worsen the score from these cards.
Loans for building credit
These types of loans are called Credit-Builder loans. They exist primarily to tackle the difficulty of the loop of not being able to borrow because you don’t have a credit score and not being able to have a credit score because you cannot borrow. These Credit-Builder loans are low-risk products, specifically designed to help you build credit. It may be easier to understand them as a hybrid of a loan and a savings account. You don’t actually get the money in your hand right away. You set up a monthly payments schedule and you start making payments. Once you have made all your payments and reach the end of the agreement, you get the funds. The payments you made, build up your credit score and at the end of the day, you have the money that you have been paying, in the form of savings.