How to Build Credit Without a Credit Card

Credit cards are one of the best tools to build credit for several reasons: they are simple to understand, easy to use, and they directly impact your credit score. But you may have trouble getting a credit card when you have poor credit or a limited credit history, or you may not want a credit card for personal reasons.  

Luckily, there are other ways to build credit without a credit card.  

Understanding Your Credit Score

Before we look at how to build credit without a credit card, it’s important to understand how your credit score is determined.  

Five Key Elements Contributing to Your Score  

Your credit score is calculated using the following five factors:

• Payment history (35%): The single biggest factor that influences your credit score, payment history looks at whether or not you pay your bills on time.  ‍
• Credit utilization (30%): This refers to the amount of available credit that you are currently using. As a rule of thumb, aim to keep balances below 30%.  ‍
• Length of credit history (15%): The age of your credit accounts affects your credit history. The longer your credit history, the greater the potential benefits to your credit score.  ‍
• Credit mix (10%): Having a good credit mix – a mix of revolving credit and installment credit accounts – can benefit your credit score.  ‍
• New credit inquiries (10%): Too many credit applications in a short time frame can negatively impact your credit score.  

How Different Types of Credit Can Affect Your Score

Having a mix of revolving credit and installment credit accounts shows that you can handle multiple types of credit, and is beneficial for your credit score:

• Installment credit: These are credit accounts that have fixed monthly payments, with the balance scheduled to be paid in full at the end of the term. Common types of installment credit include auto loans, mortgages, and student loans.  ‍
• Revolving credit: These are credit accounts that provide you with an available credit limit that you can use at your discretion, with your balances affecting your credit utilization. Credit cards and home equity lines of credit (HELOCs) are common types of revolving credit.  ‍
• Rent and utility accounts. Your bills and rent payments don’t traditionally affect your credit score in any way, unless you become delinquent on your payments. But rent and utility payment reporting services can now enable you to use these payments to work toward your credit goals.  

5 Tips for Building Credit Without a Credit Card

Maybe you have difficulty qualifying for a credit card, or maybe you don’t think you can use one responsibly yet. You’re not alone – nearly one in four Americans don’t qualify for a credit card. Whatever the reason, there are plenty of ways to build credit without a credit card.  

Use a Credit Builder Loan

Some banks and credit unions offer credit builder loans to help borrowers establish positive credit history. You take out a small loan from the bank that is deposited in a CD or savings account, then you make fixed monthly payments until the loan is paid off and the bank releases the funds to you. Essentially, you pay off the loan before you get the money.  

This allows banks to reduce their risk for borrowers with poor credit or limited credit history. And you get to work on establishing payment history that demonstrates your creditworthiness to lenders.  

When shopping for a credit builder loan, look for low interest rates and manageable monthly payments. Make sure that your payments will get reported to the credit bureaus before you take out the loan.  

Become an Authorized User on Someone Else’s Account

There is one way to use a credit card to build credit without ever getting one yourself. You can have a trusted family member or friend add you as an authorized user on their own credit card and use it to build your own credit history over time. You don’t even need to use the card yourself.  

But if you or the primary cardholder maxes out the card or stops making payments, your credit could take a major hit. Only become an authorized user if you trust that the primary cardholder can reliably make their payments on time and use their credit limit responsibly. Also make sure to verify that the credit card company reports card activity for authorized users.  

Report Rent and Utility Payments to Credit Bureaus

Paying your rent and utility bills never did anything for your credit score in years past. But now, there are several services that allow you to establish positive credit history just by making those types of monthly payments on time.  

Rent and utility payment reporting is especially useful when you don’t have existing information on your credit profile. You can establish a history of positive payments without relying solely on debts that you can’t afford.  

Reporting services may charge service fees in order to report your rent or utility payments. You will need to make sure that the service is compatible with your landlords and/or utility providers. And most importantly, make your payments on time every month.  

CreditBuilderIQ offers rent and utility payment reporting through our member portal.  

Try a Credit Building Debit Card

Credit building debit cards connect to your bank account – but instead of taking funds directly from your account when you make a purchase, the card issuer covers the cost, then pulls the funds from your account the next day to “repay” the debt.  

Your customer experience is similar to using a regular debit card, but the repayment activity gets reported to the credit bureaus and can help you establish positive payment history. But many credit building debit cards cost extra, and don’t have the same flexibility as other payment methods.  

Diversify Your Credit Mix with Installment Loans

As we mentioned above, having a mix of installment and revolving credit can help your credit mix. If you don’t want to get a credit card, using an installment loan to build credit can help. Installment loans typically have a fixed monthly payment each month, with the loan being completely paid off after a predetermined amount of time.  

Common installment loans include personal loans, credit builder loans, auto loans, student loans, and mortgages. But be careful not to borrow money just for the sake of borrowing it – only open a loan for something you actually need, and don’t borrow more than you can handle. Looking for loans with lower interest rates can save you hundreds or even thousands of dollars in the long term.  

Monitor Your Credit Reports

No matter what you’re doing to build credit, you need to pay attention to your credit reports to track your progress and look for areas of improvement. The stronger the information in your credit reports, the better it is for your credit score.  

Check your credit reports with the three major credit bureaus on a regular basis to make sure the information they contain is accurate. Inaccuracies can negatively impact your credit score and could even be a sign of identity theft.  

CreditBuilderIQ automatically flags credit report items that should be reviewed for accuracy, and can generate dispute letters for submission to the credit bureaus, then track the progress of those disputes. With just a few clicks, you can create, print, and mark dispute letters as sent, saving you time and effort.  

FAQs

Here are some answers to commonly asked questions about building credit without a credit card.  

Can I build credit without a credit card?

You can build credit without a credit card by opening other types of credit accounts or using tools designed specifically to establish credit history.  

How do I build my credit score if I can’t get a credit card?  

You can build credit without a credit card using alternative methods like credit builder loans, reporting utility and rent payments to the credit bureaus, or by getting added as an authorized user to someone else’s credit card.  

How can I quickly build credit?  

Some of the best ways to build credit fast is to pay down debts strategically, request a credit limit increase, dispute inaccuracies on your credit report, become an authorized user on someone else’s credit card, and get a credit builder loan. Check out our guide to building credit fast.  

Bottom Line

Credit cards aren’t the only path to better credit. Some of the tools available to you include credit builder loans, getting added as an authorized user, reporting rent and utility payments to credit bureaus, using credit building debit cards, and diversifying your credit mix. As you work on building credit, monitor the information in your credit report to help make sure it is reflecting you in the best possible light.  

Want to take more control of the information in your credit report? CreditBuilderIQ empowers you to monitor your credit report, dispute inaccuracies, and track your disputes from one central platform. Whether you’re starting from square one with no credit history or you want to bounce back from past setbacks, CreditBuilderIQ can help you reach your financial goals.  

Get started with CreditBuilderIQ today.