Credit cards are not the only way to improve your credit score. Follow these simple steps to learn how to build credit without a credit card.
According to Experian, the total American credit card debt for the third quarter of 2020 was $756 billion. This came after a remarkable 9% drop from $829 billion in 2019.
Experian also discovered that the average American carries at least four credit cards. These statistics demonstrate how popular credit cards are as a means of obtaining credit.
People generally use credit cards to help build their credit score because it appears to be the simplest way. This, however, is not the case! These cards attract interest rates that, if not used properly, can lead to a downward financial spiral.
That is why we are providing you with a choice. We'd like to show you how to build credit without using a credit card. So, if you're tired of accumulating credit card debt, these suggestions may be just what you need.
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Table of Contents
Tips on how to Build Credit without a Credit Card
1. Use Experian Boost
While your payment history is important in determining your credit score, utility payments are typically excluded. All of this, however, can change with Experian Boost. This free service assists customers in having their utility payments included in credit score calculations.
Most of your monthly bill payments, including utility (electricity, gas, and water), cable, internet, cell phone, and even Netflix subscriptions, can help improve your credit score with Experian Boost. According to their website, the service is free to use, and the average user can expect a credit score boost of at least 10 points.
The service is great because it only reports positive payments, leaving out late or negative ones. This way, even a late payment will not harm your credit score.
Instead of accumulating credit card debt to improve your credit score, your monthly bill payments become your escape route.
2. Utilizing a Credit-builder Loan
These are loans designed to help you demonstrate your ability to repay loans while building your credit score. Credit-builder loans function in the opposite way that traditional loans do. Instead of applying for the loan and receiving funds into your account, this money is held until you complete the installment payments.
The entire procedure serves as "training wheels." You will not be able to access the funds advanced to you until you demonstrate your ability to repay them. It promotes a saving culture because you save in installments for a lump sum at the end of the period.
Typically, your bank or financial institution deposits a set amount of money (up to $2,000) into your savings account. You then begin making monthly payments until the loan is paid off. When the loan is cleared, the bank unlocks it, allowing you to access the funds.
Credit-builder loans will help you improve your credit score while also teaching you how to save and commit to specific goals. These loans can be obtained quickly from banks, community banks, credit unions, and other financial institutions.
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3. Use Your Rent Payments to Build Credit
Rent payments, like utility payments, do not automatically appear on your credit score calculations. This is in contrast to mortgage payments for homeowners.
They can, however, be included at your request. If you want your rent payments to have a positive impact on your credit score, you can ask your landlord to submit your rent payment history to credit bureaus.
A variety of platforms can also assist you in submitting your rent payments to the bureaus. Rental Kharma, RentReporters, RentTrack, and PayYourRent are some of the best platforms for submitting your rent payment history. So, if you're a renter looking to build credit without a credit card, your rent payment is all you need.
These third-party platforms, however, will require verification from your landlord as well as a small service fee. RentReporters, for example, charges a one-time account setup fee of $94.95, as well as a monthly fee of $9.95. Rental Kharma, on the other hand, charges a $50 (one-time) account setup fee and a $8.95 monthly fee.
These third-party platforms, on the other hand, will require landlord verification as well as a small service fee. RentReporters, for example, charges a $94.95 one-time account setup fee as well as a $9.95 monthly fee. Rental Kharma, on the other hand, charges a $50 (one-time) account setup fee as well as a monthly fee of $8.95.
4. Become an Authorized User
Being an authorized card user is a simple way to improve your credit score without having a credit card in your name. This option allows you to be added as a user to the credit card of another person, typically a family member.
As an authorized user, you benefit from the primary user's positive payment history because it is included in your credit history. However, if the primary user fails to make timely payments, your credit score suffers as well. As a result, make an informed decision.
The advantage of this option is that you don't even need to have a physical card. However, your actions on the card are also important. As a result, make sure you and the primary cardholder agree on how to use the card, including how to make payments.
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5. Pay Your Loan Installments on Time
You may be wondering how to improve your credit score while still servicing a loan. Making timely payments on this loan is the first simple way to maintain and even improve your credit rating.
Whether you are repaying a student loan, an auto loan, or a personal loan, timely payments will improve your credit score. Late payments, on the other hand, will tarnish your credit.
If you already have a loan, start by making on-time, full payments every month, and you'll be well on your way to building good credit.
6. Utilize Federal Student Loans
While most students will avoid taking out a student loan, having one may be more of an opportunity than a burden. This is due to the fact that lenders will report any federal student loan payments to credit bureaus.
Making on-time payments helps to improve your credit score. So, by the end of the repayment period, your credit rating will be higher than if you had never taken out the loan.
However, it is best to be cautious not to miss any payments. Your credit score will suffer as a result of late payments. As a result, if you want to start building credit as soon as possible, you can apply for that student loan and lay a solid foundation for your credit future.
The advantage of these loans is that most will not conduct credit checks. This means they are ideal for first-time borrowers or those starting from scratch.
Direct Subsidized, Direct Unsubsidized, Direct PLUS, and Direct Consolidation loans are the four types of student loans available to you. And the procedures for obtaining the loans are straightforward.
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7. Seek out Small Personal Loans
Do you want to know how to build credit at the age of 18 without a credit card? This is the first alternative!
At the age of 18, you may find it difficult to obtain approval for larger loans. However, if you've been working hard to build good credit and have enough personal income to repay them when they're due, many lenders will make an exception.
Begin by requesting small loans from such lenders and repaying them on time. This can also aid in the development of a solid credit history.
8. Apply for a Payday Loan
Payday loans are ideal for people with no credit history. It's also an excellent way for people to rebuild their credit history if they've fallen behind on payments due to poor decisions or unforeseen circumstances.
Payday loans, according to the Consumer Federation of Protection Bureau, are short-term small-dollar loans ranging from $100 to $500. This loan is available to any US citizen who has reached the legal age of 18.
In order to apply for a payday loan, you must go to a payday lender or apply online through authorized payday lenders. You must provide your name, contact information, bank account information, address, and other documents to prove your age, source of income, and US residency.
After you have completed the application process, the lender will review your information to see if you are eligible for a payday loan. If you are approved, the lender will contact you to set up a payment plan and provide additional loan information.
9. Repay an Existing Loan
When considering how to build credit without a credit card, timely loan repayment is one viable option. Repaying an existing loan can help you improve your credit score. If you have an existing loan, such as a federal student loan, begin making small payments.
You could also consider refinancing an existing loan. This can reduce monthly payments or personal debt amounts above predetermined limits.
If you have more than one loan, debt consolidation can be an excellent way to reduce overall debt. The cash flow generated by your new consolidated loan is used to pay down individual loans.
Switching to a new lender will help you build your credit score and change how lenders view you. It also helps you avoid the hassle of monthly payments and gives you more flexibility.
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10. Consider a Title Loan
Taking out a title loan can also help you improve your credit. Title loans, which are popular among cash-strapped consumers, rarely conduct credit checks.
These loans can help you build credit, but you must repay the loan in full before the repayment period ends. As a result, before applying for this loan, you must have a solid repayment plan in place.
11. Manage your Debt-to Credit-Ratio
Your debt-to-credit ratio is the percentage of your total liabilities in credit that you owe. It is determined by comparing your current credit balances to your outstanding debts.
A debt-to-credit ratio of less than 30% of total available credit is considered excellent. Ratios greater than 30%, on the other hand, may indicate a problem. It is critical to manage your debt, such as paying all of your bills on time.
If a monthly payment is not received by the due date, it can have an impact on credit utilization or result in unexpected late fees. Late payments are another negative factor for lenders who use these criteria in their scoring models.
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12. Get a Secured Credit Card or No-deposit Credit Card
A secured credit card provides additional security for your finances by requiring a deposit of between $200 and $2000 that is held by the lender. This can be helpful if you are unable to obtain a traditional credit card due to your financial history or current situation.
You must provide proof of income and a valid ID, and the deposit may be returned if your first payment is made on time. Make certain that the products report to at least one credit bureau.
You can use a secured credit card just like any other credit card. To establish good credit and avoid paying extra interest, make sure you pay your full balances on a monthly basis.
13. Get a Cosigned Loan
If you are unable to obtain a loan on your own, consider obtaining a cosigned loan. This means that if you default, another person in your financial situation will be legally responsible for the debt as well.
Your cosigner could be your spouse, a family member, or a close friend. The individual must have a good credit score and a steady income.
Obtaining a co-signer may help improve your credit score if you repay the loan in accordance with the terms and conditions. You must be prepared to honor your repayments in order for someone to agree to cosign your loan, as a default affects both parties' credit reports.
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14. Don't Apply for New Accounts Back-to-Back
Having a diverse set of credit lines can be advantageous. It assists in maintaining a healthy credit score while also assisting in the development of more positive attributes such as length of history, average age, and so on.
However, avoid opening too many new accounts at once. This will set in motion bad borrowing habits that could lead to financial nightmares in the future. Furthermore, it sends the wrong signal to lenders, who may become reluctant to lend to you.
15. Keep Tabs on your Credit Score
Credit scores are a standard way of determining your creditworthiness. Your credit score will be between 300 and 850, with higher scores indicating greater creditworthiness.
Every year, review your credit report. The three major credit reference bureaus, including Transunion, Equifax, and Experian, are required to provide you with free yearly reports. Check the report for any changes that may have an impact on your score.
If you discover any errors or irregularities, contact the credit bureau that provided it and request that they be corrected. Disputes are resolved between the reporting agency and the consumer, and if they are resolved in your favor, the errors on your credit report may be corrected or removed.
How To Build Credit Without A Credit Card [Video Guide]
How Fast Can You Build Credit from Scratch?
It's great to know how to build credit without a credit card. However, the question of how long it takes to build credit from scratch will arise.
The truth is that this is not a one-day process. It will typically take you six months to establish your first credit score. However, you should make the most of those six months in order to establish a solid credit foundation.
It will be more difficult to repair a damaged credit score than to establish a new one. Obtaining a good credit score will also take longer than six months. This requires a great deal of patience.
Is there a way to get a good credit score faster? Without a doubt, yes! While the first six months may be consistent, demonstrating behaviors that impress lenders may help you raise your credit score sooner than you expected.
Consider the following advice:
Tips on how to Build your Credit Score Faster
On-time Bills Payment
On-time bill payment improves your credit score. Late payments, on the other hand, damage your credit score history. As a result, make certain that your payments are never late (past the due date).
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Use your Card Sparingly
Don't go overboard with your credit card. In fact, keeping your purchases under 30% of the card's available limit will help your credit score.
The closer you get to your maximum spending limit, the worse your credit score suffers. Overspending raises a red flag for lenders and should be avoided.
Keep your Credit Card Accounts Open
Don't keep a credit card that you don't use. You should keep in mind that you are attempting to build credit.
As a result, if you open a credit card account, use it wisely. Maintaining those accounts has a positive impact on your credit.
Having several loans that you repay on time is the best way to demonstrate to lenders your repayment capability. As a result, don't limit yourself to a single loan when you can service several. Apply for several loans and make sure your payments are made on time.
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