How to Build Credit Without Credit Cards
Credit cards provide one of the best ways to build credit quickly. Because of their ease of use, flexibility, and even rewards, credit cards offer a simple route toward building a good credit score. Not everyone can qualify for a credit card, however. Others may want to avoid the potential pitfalls that come from credit cards. So, how can those people build good credit? Here are some popular ways to build credit without using credit cards:
Table of Contents
At a Glance
- Establishing credit without credit cards is possible but isn’t an overnight process.
- Becoming an authorized user on an existing credit card account was previously the most straightforward way to establish credit, but credit-builder debit cards and peer-to-peer lending are quickly gaining popularity.
- Regardless of what option you choose, building credit requires making timely payments, keeping your spending low compared with your income, and ensuring you never spend more than you can afford to pay off immediately.
7 Ways to Build Credit Without Credit Cards
It might sound impossible to build credit without a traditional credit card, but it’s not. More and more alternative credit-building products are joining the traditional handful of methods shown to help you establish a positive credit history without needing a credit card. Here are seven of our top picks for credit-building without the need for a credit card:
Become an Authorized User
Becoming an authorized user is a simple way to build credit with someone you trust – and who trusts you. Getting added to another person’s credit card account as an authorized user means their credit account is attached to your credit report. Your score can climb if they make their payments on time and keep balances low.
Authorized users are not responsible for making payments themselves – a great benefit for those looking to establish credit but lacking the financial resources required to open a secured credit card. But not all credit cards or banks permit authorized users, so it is essential to read the terms and conditions of any card someone close to you has that you hope to be added to.
Related Article: 7 Common Myths About Authorized Users
Get a Credit-Builder Debit Card
Debit cards, typically linked to your checking account, can also build credit. While debit card payments do not directly impact your credit score, some banks and financial services offer programs that report debit card activity to credit bureaus.
These credit-builder debit cards help you establish a strong credit history by reporting a positive payment history like a credit card. Ensuring you make your credit card payments on time can quickly help you establish credit, with payment histories a major factor in FICO and VantageScore credit scoring models.
The Experian Smart Money™ Card is one such debit card. The card helps users establish a positive credit history with the power of Expedia Boost (more on that later). Another option, the Zolve Azpire Credit Builder Card, allows users to establish credit with no minimum deposit required and no annual fee – and 1% cash back rewards on all eligible purchases.
The Extra Debit Card is a credit-builder debit card offering rewards—the card account links with a linked checking account. Extra then assigns something called “Spending Power,” which is related to the bank balance. Cardholders then make purchases as they normally would with a debit card, with Extra automatically repaying itself daily, so the total utilization rate resets every 24 hours.
Related Article: The Ultimate Guide to Debit Cards
Get a Credit Builder Loan
Self is a fintech lender that seeks to help consumers build credit without a credit card. The company provides this service through its popular Self Credit Builder Loans.
Credit builder loans work by moving approved loan funds into a separate bank account. This account is usually a CD (certificate of deposit). The person taking out the loan then makes payments against that CD for the loan term – the length of the loan agreement. Loan terms with Self typically run between six months and six years.
Once the entire loan balance is repaid (including interest), Self-unlocks the CD account and returns the total money the borrower paid, minus any interest and administrative fees.
The primary benefit of credit builder credit loans is that the lender agrees to report payment history to the three major credit bureaus (Experian, Equifax, and Transunion). This process allows the borrower to build a positive credit history through timely payments.
According to Self, their credit building loan program is ideal for anyone, especially those new to credit or with a FICO Score below 600. Self also allows Credit Builder Loan holders to open a secured credit card account after repaying at least $100 – the Self Visa® Credit Card.
Other Lenders
While Self is the biggest name in the credit builder loans marketplace, they aren’t the only lender to offer this service. Many banks and credit unions offer similar loans. Typically, larger banks, like Chase or Bank of America, do not provide these loans, but smaller institutions, like local credit unions, do.
The benefit of credit builder loans, regardless of the bank or lender, is that they usually feature low-interest rates and easy repayment terms. These factors make them ideal for building credit and more accessible than some credit cards or personal loans.
Consider Peer-to-Peer Lending
Peer-to-peer lending is another common form of credit builder lending. A peer-to-peer (or P2P) service is a new type of lending where individuals with lower credit scores can secure loans for small amounts they usually wouldn’t qualify for.
There are dozens of reputable P2P lenders on the market, including prominent names like Lending Club. The benefit of these services is that people with bad or no credit can access lines of credit they usually wouldn’t have. Plus, P2P services remove the need to borrow money from friends or family.
However, the negatives of P2P loans are higher-than-average interest rates and fees that might not be present on other types of loans.
Pay Down Your Student Loans
Many people can build a good credit score by repaying their existing loans – especially federal student loans. Federal student loan payments are reported to the three major credit bureaus, meaning the payment history of loans in your name will reflect on your FICO or VantageScore credit score.
While repaying student loans without a credit card won’t give you the type of credit mix many lenders like to see, it can help you build a positive credit history without the need for a credit card.
Sign-Up for Experian Credit Boost
Experian Boost is a free service that helps raise a person’s credit score through additional reporting. The Experian Boost service is free to join and can add around 19 points to a person’s FICO Score for adding reoccurring payments not generally found on a person’s credit report, including:
- Internet service provider bills
- Mobile phone bills
- Cable and other television bills
- Utility bill payments (gas, water, electricity, etc.)
One of the most beneficial aspects of the Experian Boost service is that Experian does not look for negative payment histories. Boost can’t hurt your credit score – only help it. Even better, the boost is instantaneous, and there is no need to wait.
Conclusion
Building credit without credit cards is possible and becoming more accessible with various alternative methods. Individuals can establish a positive credit history by becoming an authorized user on someone else’s credit card, getting a credit-builder debit card, or taking advantage of credit-builder loans. Peer-to-peer lending and repaying existing loans, such as student loans, can also contribute to building credit. Additionally, signing up for services like Experian Boost can enhance credit scores. These options provide individuals with alternative pathways to establish credit without relying solely on traditional credit cards.
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