Credit Cards » Credit Card Guides » How To Build Credit Without A Credit Card
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How To Build Credit Without A Credit Card

There are ways to build credit without a credit card such as a credit builder loan or becoming an authorized user. Here are our strategies
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: June 3, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: June 3, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

Is It Possible To Build Credit Without A Credit Card?

Yes, building credit and a credit score without a credit card is possible. While credit cards are a commonly used tool for establishing a credit history, they are not the only option available.

However, it require responsible financial behavior and consistent on-time payments. Additionally, building credit takes time, so patience and persistence are key. 

5 Ways To Build Credit Score Without A Credit Card

 Here are five ways to build credit or improve your credit score without using a credit card:

Some financial institutions offer credit-builder loans specifically designed to help individuals establish or improve their credit. With these loans, the money you borrow is typically held in a savings account or certificate of deposit (CD) as collateral, and you make monthly payments towards the loan.

By making regular, on-time payments, you demonstrate responsible credit behavior, which can help build your credit history. The drawback is that you may need to pay interest on the loan, so it's essential to consider the associated costs.

If you can't get approved for a loan on your own, you can get a co-signer on a loan. A co-signer is someone who agrees to be responsible for your loan payments if you default. 

Another option is to obtain a secured loan, where you provide collateral such as a car or a savings account. Similar to credit-builder loans, making consistent payments on a secured loan can help establish a positive credit history.  You can also consider shared secured loans.

The requirement is providing collateral, and the drawback is the risk of losing the collateral if you fail to make payments.

build score without a credit card
Consider secured loan, but pay attention to the interest rate

Some credit reporting agencies, such as Experian and TransUnion, allow individuals to report their rent and utility payments. By opting to report these payments, you can build a credit history based on your regular monthly obligations. This can be particularly useful for individuals who have a reliable rental history and consistent utility payments.

The drawback is that not all credit bureaus consider rent and utility payments, so it may not have a significant impact on your credit score.

 If someone you trust, such as a family member or close friend, has a credit card in good standing, you can ask to be added as an authorized user. 

As an authorized user, the credit card activity, including the payment history and credit utilization, is reported on your credit report. This can potentially have a positive impact on your credit history, especially if the primary

By being an authorized user on a credit card with a positive payment history, you can establish or improve your own credit history. The account's age and payment history contribute to your credit score, potentially boosting your creditworthiness.

 However, the drawback is that if the primary cardholder mismanages their credit, it can negatively impact your credit history as well.

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Obtaining a student loan and making timely payments can positively impact your credit history and help improve your credit score.

If you're a student with little to no credit history, taking out a student loan allows you to establish a credit history. Lenders and credit bureaus need information about your borrowing and repayment habits to assess your creditworthiness. You can build a positive credit history by successfully managing a student loan.

However, while a student loan can help improve your credit, responsible repayment is crucial. Late payments or defaulting on your loan can adversely affect your credit score.

How Long Does It Take?

Building credit without a credit card can take time, as credit history is built gradually through responsible financial behavior. The exact timeframe can vary based on individual circumstances.

Establishing credit through methods like credit-builder loans, secured loans, or rent and utility payments typically requires at least 6 months to show progress, and 12-24 months to see a significant improvement.

It's important to be patient, monitor your credit report regularly, and ensure accuracy. Building credit is a long-term process that requires discipline, but it can lead to improved creditworthiness and greater financial opportunities.

build credit report
Monitor your credit report regularly

Does Using A Debit Card Build Credit?

No, using a debit card does not build credit. Debit cards are linked to your bank account and allow you to spend money that you already have.

Since you are not borrowing money or extending credit when using a debit card, the activity does not get reported to credit bureaus, and therefore it does not contribute to building or improving your credit history or credit score.

Building Credit At 18: Best Tips For Starters

Starting to build credit at 18 can lay a solid foundation for your financial future. Here are some tips to help you get started:

  • Start small. Don't apply for a credit card with a high credit limit if you have little income. Start with a small credit limit and gradually increase it as your income grows.
  • Open a checking and savings account: Establishing a banking relationship is essential. It shows stability and can be a stepping stone for future credit opportunities.

  • Become an authorized user: Ask a trusted family member or friend to add you as an authorized user on their credit card. This allows you to piggyback on their positive credit history, but make sure the primary cardholder has good credit habits.

  • Consider a secured credit card: Secured credit cards require a security deposit as collateral, making them easier to obtain for individuals with limited credit. Use the card responsibly by making small purchases and paying the balance in full each month.

  • Use your credit card responsibly. Only charge what you can afford to pay off in full each month. Avoid carrying a balance on your credit card, as this will hurt your credit score.
  • Be patient. It takes time to build good credit. Don't get discouraged if you don't see results immediately. Just keep doing the right things and be patient.
  • Keep credit utilization low: If you have a credit card, aim to keep your credit utilization ratio (the percentage of available credit you use) below 30%. This demonstrates responsible credit usage and can positively impact your credit score.

  • Monitor your credit: Regularly check your credit report for errors and discrepancies. You can access free credit reports from each of the major credit bureaus once a year through AnnualCreditReport.com.

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FAQs

Afterpay is not typically reported to credit bureaus, so using Afterpay alone does not build your credit.

Klarna does not directly report to credit bureaus. However, the information is available for credit bureaus, so responsible use of Klarna and timely payments can contribute to a positive credit history in case the credit bureaus collect the information independently. If credit-building is your goal – there are better alternatives.

Paying rent generally does not build credit directly, as rent payments are not automatically reported to credit bureaus. However, there are rent reporting services available that can report your rent payments to credit bureaus, potentially helping you build credit if you have a positive payment history.

Leasing a car can impact your credit in two ways. Firstly, the lease agreement may be reported to credit bureaus, and making timely lease payments can positively impact your credit. Additionally, leasing a car can contribute to your credit mix, which is a factor considered in credit scoring models.

If you choose to borrow using Affirm, your timely payments and responsible credit utilization may be reported to credit bureaus, which can contribute to building your credit.

Utilities and phone bills can help build credit if they are reported to credit bureaus.

Yes, Cash App Borrow has the potential to impact your credit positively. However, missing payments is more likely to negatively affect your credit score similarly. According to the Cash App Borrow Loan Agreement, your account information may be reported to credit bureaus, although it does not explicitly state that on-time payments are reported.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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