How to Build Credit Without a Credit Card
Using a credit card responsibly is the best way to build credit. After all, credit cards are easy to get, they don’t require you to incur debt, and they report information to the major credit bureaus on a monthly basis.
But a credit card is not the only tool for the job. And that’s important because many people are understandably hesitant to use credit, for fear that they will overspend and rack up debts they cannot afford to repay.
There are actually a few different ways to build credit without a credit card. And we’ll explain each of your options below.
1. Build Credit with a Loan
Most types of loans report account information to the major credit bureaus on a monthly basis, allowing you to build credit if you pay your bill on time. But going the loan route has its fair share of flaws. For one thing, taking out a loan requires going into debt. Loans are typically much harder for people with limited or bad credit to get than credit cards. That’s why mortgages and auto loans, for example, aren’t typically included among the best types of loans for building credit.
Rather, five other types of loans are typically associated with credit building:
|Loan Type||Description||Approval Odds with No Credit||Debt Burden||Cost|
|Credit-Builder Loan||Very small loans (~$1,000) with short repayment timeframes (~1 year) that allow borrowers to add positive info to their credit reports, assuming payments are made on time each month.
Funds generally aren’t available until the loan is fully repaid.
|Secured Loan||A personal loan that uses a savings account, certificate of deposit (CD), car title or other item of value as collateral.
The loan amount generally can’t be higher than the collateral’s value.
|Peer-to-Peer Loan||Loans extended by fellow consumers, rather than a financial institution, often via crowdfunding.
LendingClub and Prosper are two examples of services facilitating peer-to-peer loans.
|Federal Student Loan||Loans intended for educational purposes.
Federal student loans can be subsidized, and they are far less expensive than private student loans.
|High(credit not considered)||High||Low|
|Personal Loan||An unsecured loan that can be used for any purpose.
Personal loans do not require collateral, typically have fixed interest rates and must be repaid in equal monthly installments.
It’s worth noting that all of these options will be more expensive and riskier than simply placing a deposit on a secured credit card. The deposit amount (~$200) is fully refundable. And you can find offers with no annual fee.
You can learn more from WalletHub’s secured credit card guide.
2. Build Credit with Rent Payments
Not all landlords report monthly rental payments to the credit bureaus. But some do. And certain third-party services can help facilitate the transfer of information to your credit report if your landlord doesn’t. You just need to ask your landlord to decide how to proceed.
If you need a third-party service to get rental info onto your credit report, here’s a quick overview of some popular options:
|Service||Reports to…||Cost||Better Business
|ClearNow*||Experian||Bank Transfer / Debit Card $4 to $14.95 per payment||A+|
|Cozy||Experian||Bank Transfer - $0
Debit Card – 2.75% of each payment
|eRentPayment||Experian||eCheck / Bank Transfer - $2 to $3 per payment
Debit Card – 1.5% of each payment
|Bank Transfer – $6.95 per payment
Debit Card – 1.95% of each payment
|Bank Transfer - $0 - $3 per payment (depends on landlord)||A|
|Rental Reporters||TransUnion||$25 one-time fee
$9.95 per month
|Rental Kharma||TransUnion||$40 one-time fee
$9.95 per month
|Debit Card – 0.95% of each payment
eCheck / Bank Transfer - $4.95 per payment
|Rentler.com||Experian||Bank Transfer – $1.95 per payment
Debit Card – 1.9% of each payment
*To use ClearNow and RentTrack, your landlord must sign up first. Fees are charged to the landlord but may be passed on to you. RentTrack is planning to begin allowing renters to sign up without landlord involvement in the near future.
**You can only use eRentPayment to pay with a debit card if your landlord signs up first. The landlord must pay a $30 set-up fee and a $3 monthly fee.
Bear in mind that you may have to opt -in (at no additional charge) for monthly credit reporting. Not all services will do it automatically. Plus, not all credit-score models will consider rental-payment history, even if it’s on your credit report. So the benefit of this strategy depends on the type of credit score a lender uses to evaluate your application, which can be impossible to determine.
You may be interested to know that most of these third-party services accept credit card payments, too. For more information, check out WalletHub’s guide on how to pay rent with a credit card.
3. Build Credit as an Authorized User
OK, this method does involve a credit card, but it’s not your own account. And you don’t actually need to possess any plastic to benefit. By becoming an authorized user on a family member’s credit card account, you can basically piggyback on their credit standing.
More specifically, their account will be listed on your credit report, and you will benefit from information about on-time payments and low credit utilization being reported to the credit bureaus every month. And if the account information is negative, you can simply ask the credit bureaus reporting the information to remove the records from your file. Because authorized users aren’t responsible for making payments, they can’t be held responsible for the primary accountholder’s failure to do so or for any other type of account misuse.
For more information on what this arrangement entails, check out WalletHub’s authorized user guide.
No matter which credit-building method you choose, your credit will only improve if you borrow responsibly. And above all else, that means always paying your bills on time. So don’t borrow more than you can afford to repay, sign up for autopay if you’re forgetful, and make sure to save enough.
It’s also worth mentioning that you may have already built a bit of credit without realizing it. You can see for yourself by checking your latest credit report for free on WalletHub, the only site with free credit reports and scores updated daily.
Access to your latest credit data will also aid your credit-building efforts. You’ll be able to monitor your progress and make adjustments as necessary, with help from WalletHub’s personalized Credit Analysis.
Finally, just to recap, here’s a quick overview of our favorite ways to build credit without a credit card:
Best Ways to Build Credit Without a Credit Card
- Get a credit-builder loan
- Get a secured loan
- Sign up for a rent-payment credit-reporting service
- Become an authorized user on a relative’s credit card
OK, so that last one does involve credit cards but not actually using one to make purchases. Simply having an open credit card that’s in good standing will help you build and improve your credit.
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