How to Build Credit without a Credit Card

Hi Debbie,

I'm looking for a way to build credit but really have a hard time controlling my spending when using credit cards. Are there any other ways to build credit?

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Here's a question we get quite often:

"I'm looking for a way to build credit without using credit cards. I have a hard time controlling my spending, but debit isn't helpful. Are there any other ways to build credit without credit cards?"

If you're like most people, you probably think that a credit card is the easiest way to build credit. But that's not always the case! In this guide, we will discuss how to build credit without a credit card. The key here is to demonstrate that you're consistently able to pay back what you owe, be it your utilities, your student loans, or even your phone bill! So whether you're just starting out or you've had trouble building credit in the past, this guide is for you.

Here are some of our favorite methods:

Becoming an Authorized User

This is a good way to build your credit score if you have someone you trust who has a good credit history. An Authorized User is basically just an extra person on the credit card account. They're not responsible for making payments, but the primary cardholder's payment history will be reflected on their credit report. This can help boost your credit score in as little as six months!

The way this works is that the primary cardholder's credit card activities will reflect on your credit as well. If they make their payments on time, this reflects positively on your credit score as well.

Do be careful though! The inverse is also true: if the primary cardholder misses a payment, this will reflect poorly on you as well, so make sure you choose someone who's really consistent with their payments.

Pros:

• You can piggyback off of the primary user’s good financial behavior
• Reasonably fast results (roughly 6 months)

Cons:

• If the primary user misses a payment, your credit score is also negatively affected
• It can be difficult to find someone who is willing to make you an authorized user

Paying Your Bills On Time (and Reporting Them)

Paying your bills on time is one of the simplest and most effective ways to build credit. Most utility companies and lenders will report your timely payments to the three major credit bureaus, which will help improve your credit score over time. Additionally, things such as federal student loans, your cellular plan, or even rent can be reported as well. If you're not sure, contact the providers of these services to find out.

Credit boosting services like Experian Boost can now report things such as Netflix or Hello Fresh subscriptions, in addition to helping you keep track of your utility and phone bills. These services are a great way to keep track of your bills, and can quickly raise your credit score by a few points.

Pros:

• Lots of bills are reportable to credit bureaus
• Fast results (can be nearly instant!)

Cons:

• Inconvenient to ask companies and people to report to credit bureaus
• Credit boosting services cost money

Credit Builder Loans

Credit builder loans are a good way to build your credit score if you're just starting out. These loans are typically small, and the loan amount is deposited into a savings account that you won't be able to touch until the loan is paid off. This helps ensure that you're able to consistently make your payments on time.

The best part about credit-builder loans? They generally have low-interest rates and no fees, so you can focus on building your credit without having to worry about extra costs.

Credit builder loans are most commonly offered by credit unions and smaller financial institutions. Here are some of the most popular: US Alliance Financial, Digital Federal Credit Union, and Self.

Pros:

• Low interest, usually no extra fees
• Accessible, even without much credit history

Cons:

• Can’t access money immediately, unlike a typical loan
• Is a lengthy financial commitment (usually more than 6 months)

Debit Cards that Build Credit

There also exist services such as Extra that allow you to build credit while using a "debit card". They work by essentially acting as a credit card that is charged when you spend on your debit card, and then paid back immediately. For all intents and purposes, you are essentially using a debit card that builds credit.

Pros:

• You can only spend money that you have on hand
• You build credit as you would with a normal credit card

Cons:

• Has a monthly cost

So there you have it! These are some of our favorite ways to build credit without using a credit card. We hope this guide was helpful for you. Thanks for reading!

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