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How to Build Credit Without a Credit Card

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Building credit from scratch is made difficult because it’s hard to get credit when you’ve never had credit. Once you finally have an active credit or loan account with a major bank, building credit becomes easier. Maybe you don’t want to use a credit card. After all, they do have a negative reputation and can be a gateway to debt if you’re not careful. You can still build a credit history without a credit card, though it could be more difficult.

If you want to build a credit history without using a credit card, your other option is to build your credit with a loan. Loans typically are more difficult to borrow, especially when you don’t have a credit history to start with, but there are still some options.

Federal student loans are typically granted, without consideration of your credit score, up to a certain amount as long as you’re enrolled at least part-time in an eligible institution. Private student lenders probably won’t approve you without an established credit history and qualified income.

You may be able to borrow a personal loan from a bank or credit union. Approval will be easier if you can secure the loan with funds from a savings account or certificate of deposit. Some credit unions have credit builder loans specifically for this purpose. The loan is secured by money in a savings account. You may regular payments on the loan and, as long as you don’t default, the collateral in the savings account is yours.

A mortgage or car loan is another option. But it can be difficult to qualify for a loan of this magnitude without a prior credit history. Still, with a good income and down payment, you may be able to get approved.

If you can’t qualify for a loan on your own, you may be able to get someone (with good credit) to cosign for you. However, cosigning is generally a bad idea. The person who signs the loan with you can be held liable for the loan payments if, for some reason, you can’t make the payments on your own. Late payments affect the cosigners credit just as much as they affect yours. And, if you ultimately file bankruptcy, the cosigner is on the hook for the entire debt unless they file bankruptcy too.

Beware of advance fee loans and other loan scams that prey on people with no credit or bad credit. These loans typically guarantee approval and ask for some type of upfront payment.

Less Reliable Ways to Build Credit Without a Credit Card

Your rental payments may help you build a credit history if your landlord reports payments through Experian RentBureau. Only a portion of landlord’s report this data and only to a single credit bureau; Experian doesn’t share rental tradelines with the other two major credit bureaus. If you’re a renter, check with your landlord to see whether your timely rental payments are being reported to Experian each month.

There are alternative credit scores, like that from PRBC, which are based on non-credit based payments like your utility services and phone bill. The biggest drawback is that this non-traditional method of credit reporting and scoring isn’t built into your credit reports from the three major credit bureaus. Most lenders, creditors, and other businesses rely on traditional sources of credit data like tradelines from credit cards and loan accounts.

Be clear about types of financial products and services that typically do not help you build credit: utility services, phone bills, insurance payments, having a job, having a checking account, a debit or check card, a prepaid card, rent-to-own arrangement, or a payday loan. As long as you’re in good standing with these accounts, they don’t affect your credit.

However, if these accounts go into default and are sent to a collection agency, they will affect your credit. A debt collection will establish your credit history, but not in a good way. A collection account will build your credit, but it will build a negative credit history that you’ll have to work harder to overcome.

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