Ways To Build Credit Without A Credit Card

How To Build Credit Without A Credit Card?

Credit cards are a type of revolving credit, and are just one type of credit that is reflected on your credit reports. Revolving credit has payments which vary depending on your card balance. The other types are installment credit, and open credit. Installment credit comes in the form of loans, whether it be a mortgage, a car loan, student loans, or personal loans, these all represent installment credit where you pay a set payment each month. Open credit is the bills you pay each month for services and utilities.

There are plenty of ways to build credit without a traditional credit card. Mostly, keeping your credit report clean, your bills paid, and not living over your means is a good way to keep up your credit score. However, life happens, and credit scores can sometimes suffer. If you need to build your credit but aren't able to get a traditional credit card, there are other ways to see your score turn around for the better.

The most important thing to know is that payment history makes up most of your credit score -- 35% of it. So, paying your bills on time and in full goes far when building credit.

Ways To Build Credit Without A Credit Card

Responsibly using credit cards is certainly a good way to establish or improve credit, but they aren't for everybody. You may have had trouble with credit cards in the past and want to avoid them. Maybe you don't like the fact that credit cards have variable interest rates and monthly payments. Whatever the reason, you want to avoid plastic while improving your credit. There are several ways this can be done. Here are a few options you can try:

Become An Authorized User

Becoming an authorized user on a friend or family member's credit card account lets you have the benefits of the credit-building aspects while avoiding the drawbacks of having a card in your name. The key is attaching yourself to an account that's managed responsibly, as your credit can be negatively impacted as well. Make sure the primary cardholder makes payments on time and keeps the balance low, and it doesn't hurt if the card's been open for a long time.

Sometimes, the provider gives the authorized user their own credit card. With the point being to avoid plastic, know that you never have to use it. You can cut it up, lock it away in a safe or lockbox, or have somebody else hold onto it. When you're an authorized user, you don't have to use the card or pay for charges and can still improve your credit.

Make sure that the card provider reports authorized user activity to the three national credit bureaus, Experian, Equifax, and TransUnion.

Get A Credit Builder Loan

Another way to avoid credit cards is to take out a loan, specifically a credit builder loan. Make payments on time and in full, and you're building credit as you pay it back. You can also try for a small personal loan, but the best practice is a credit-builder loan, which exists only for the purpose of improving credit.

With credit-builder loans, you don't get any money upfront to pay back. Instead, you establish a payment schedule with a lender for a certain amount, and make payments into an account until you reach that amount. Once paid back in full, you get access to the money you saved up, so think of it like getting to build credit while successfully saving up some money.

Consider An Auto Loan

If you need a car, you can explore special finance auto loans to get the wheels you need as well as a chance to improve your credit. Just like being an authorized user, having payments reported, or getting a personal loan, a car loan can help you build up credit without a credit card. Special finance lenders provide subprime car loans to borrowers who don't have the best credit scores. Be aware, that you are likely to face higher interest rates on bad credit loans. If you successfully complete a subprime car loan, your credit should improve and you typically qualify for better rates and terms on your next auto loan.

Apply For A Secured Credit Card

Even though a secured credit card is technically a credit card, it doesn't work the same as a traditional card. Instead, you make a deposit, typically anywhere from $250 to $500 or more, and that becomes the credit limit. When you use it, it acts like a credit card, and you're responsible for making payments to keep your credit limit. If you don't pay, the money is subtracted from your credit card balance and your credit limit lowers.

Responsible use and proper management will help you build your credit score while showing a revolving credit payment on your credit reports.

Repay An Existing Loan

By repaying an outstanding loan, or a series of outstanding bills, you can greatly improve your credit score. Your credit score will improve slightly with each bill or loan you repay. Remember, though, to keep at least one, affordable loan going if you want to continue to build your credit by making timely payments. However, if you have multiple things open, pay off your smallest debt first and work your way up to bigger pay offs.

Report Your Rent Payments

Having your rent payments reported by your landlord can be a big plus, especially if you're a long-time resident. This is a type of open credit that can help improve your credit score without taking on anything extra.

Get Credit For Bills You Pay

If you have bills you're paying each month (cell phone, cable, rent, electricity, gas, internet, and more), you can try to get some reported to the credit bureaus. While these providers report late payments, they typically don't report positive payment activity – but you can ask them to.

Talk to your utility providers and ask if they have a program to report positive payments or if they're willing to for you. If they won't, there are services that report your rent payments so they can help you build credit. Sometimes, you pay these companies a small fee, and they collect and report your rent payment information. Mostly though, these days you can report payment yourself on apps like Experian Boost.

Since you're already paying these bills every month, you might as well try getting them on your credit reports. It's just another way to show the world you're responsibly managing monthly bills.

Factors That Impact Your Credit Score

Your credit score is made up of five factors that are present on your credit report. These are payment history, amounts owed, length of credit history, new credit, and credit mix. Here are a few facts about each.

• Payment history makes up 35% of your credit score. The more you pay your bills on time, the better your payment history will look.
• Amounts owed make up 30% of your credit score. When it comes to amounts owed, lenders like to see that you're only using around 30% or less of what is available to you. This is known as a credit utilization ratio.
• Length of credit history accounts for 15% of your credit score. Keeping accounts open and in good standing for long periods of time shows that you can be responsible long-term. This is a big plus for lenders.
• New credit is 10% of your score. Only opening new credit when absolutely necessary will help keep your credit in good standing.
• Credit mix is the final 10% of your credit score. Keeping a balance of revolving credit, installment loans, and open credit will help keep your credit score healthy.

Best Practices To Build Credit

When it comes to building credit, it can be a slow and not always steady process. In a real-world scenario, the best practice is to stay on top of your finances. Don't overspend. This is a good rule that you may already know if you're avoiding credit cards currently. Here are just a few more best practices that you can use to steadily improve your credit score:

• Always pay your bills by the due date.
• Pay your bills off completely.
• If you're paying on a credit card, make sure to pay the total balance, not the minimum due.
• Don't apply to every credit card you're offered.
• Avoid payday advance loans.

Ready to Build Credit?

It can be tough to get approved for a car loan without a strong credit history behind you. However, there are lenders and dealers out there who know how to handle borrowers struggling with credit issues, and they're ready to give them a chance. At Auto Credit Express, we can help you find financing more easily. We do this by matching car buyers to local dealerships that are equipped to handle unique situations. You can get this process started by submitting our free and easy auto loan request form right now.