How to build credit score without credit card

By Izzy M
Modified on April 26, 2023
how to build credit score without credit card

Credit scores are important because they can help you achieve significant milestones in life. Lack of a credit score can make it difficult for you to make large purchases, find housing, and save money on various expenses. If you just turned eighteen, you may want to know how to build credit without a credit card. Keep reading to learn about your financial options!

What Are Credit Reporting Agencies?

A credit reporting agency, or credit bureau, is a company that collects and stores information about a consumer’s financial activity. The credit bureaus use that data to build credit reports, which are statements that display your credit history. The three major credit bureaus in the United States are TransUnion, Equifax, and Experian. 

Credit bureaus make money by selling your credit reports and credit scores to financial institutions and creditors. However, only businesses with a legitimate purpose can access your private information. The Fair Credit Reporting Act (FCRA) limits who can access and view your credit reports. Limitations keep your personal information protected. 

Borrowers receive one free credit report from each credit reporting agency annually. You can request any credit report online through the bureau’s website. By requesting a credit report every four months, you can monitor your credit score throughout the year.

How Can I Build Credit History Without a Credit Card?

Credit cards are one of the best ways to build credit, but what if you don’t qualify? Many credit card companies will deny applicants with no credit history. But not to worry! There are plenty of ways for consumers to build a credit score without a credit card. 

Use Credit Builder Loans

A credit builder loan helps consumers build credit history to get a good credit score. Anyone can qualify for a credit builder loan as long as they have a reliable source of income to make monthly payments. 

The loan amounts for credit builder loans are typically up to a thousand dollars. Unlike traditional loans, borrowers do not receive a lump sum. Instead, the lender secures the money in a bank account or certificate of deposit (CD). Borrowers make monthly payments, and once they pay off the credit builder loan, the lender releases the money. 

If you want to build an emergency fund, use a credit builder loan instead of a savings account! This type of loan works similarly to a savings plan, except borrowers can establish a credit score while they make deposits. 

Become an Authorized User

If you want to build a credit score without a loan or credit card, you can become an authorized user on credit accounts. Existing credit card borrowers can add anyone as an authorized user to their account. Authorized users get a credit card to make transactions, but they are not responsible for paying the bill. 

Being an authorized user helps build credit because lenders use the primary cardholder’s activity. Suppose the primary cardholder manages their debt wisely and pays on time. In that case, the authorized user can start building credit quickly without applying for a credit card. 

Make Rent Payments 

You can build credit without a credit card by making rent payments on time! Some landlords report tenant payments to at least one of the major credit bureaus. If you live on your own and pay rent, ask your landlord if they participate in rent-reporting services. If your landlord does not report payments, you can sign up for a rent-reporting service on your own. Paying your monthly bills on time can help you build a high credit score! 

Make Utility Payments

Making on-time payments to utility companies can help you build credit over time! Some utility companies report payment history to credit bureaus, but not all. Speak to a customer service representative and ask if they report accounts. You can work on getting good credit by simply living your life and paying your house bills. 

Apply for a Secured Credit Card

A secured credit card works similarly to a traditional credit card, except borrowers must provide a security deposit. The security deposit is equal to the credit limit on credit accounts. For example, if you provide $500, you can spend up to that amount. The minimum required for a deposit depends on the credit card company. 

You can use your secured credit card for various purchases. At the end of the billing cycle, you will receive a credit card statement which you must pay on time. Your on-time payments can help you build a credit score and credit history since creditors report to credit bureaus. 

Apply for an Installment Loan

An installment loan helps eligible borrowers obtain a lump sum payment quickly. The loan is repaid through small installments over a few months or years. If you plan on making a large purchase, it may be a good idea to take out a small loan to build credit

Suppose you want an iPad that costs $429, but you only have $300 until your next pay period. You can use a personal loan to afford the purchase and build a credit score! However, this may only be a good option if you know you can repay the personal loan on time. Do not overextend your finances to build a payment history. If you can pay the loan off early to save on interest fees, do so after verifying there are no prepayment penalty fees.

Apply for a Federal Student Loan

A federal student loan could help with Building credit if you plan on furthering your education! The government reports federal student loan payments to credit reporting agencies. 

Your positive payment history can help you get a good credit score if you make on-time payments. Best of all, students have the option to defer payments until after they graduate! Payment options give you ample time to find a job and focus on your studies. When repayment begins, you can choose from various payment options. Many graduates opt for an income-based repayment plan, so they are not paying more than they can spare each month. 

How Long Does It Take To Get a Credit Score?

When you start building your payment history, you will not get a credit score immediately. Typically, a consumer needs about three to six months of credit account activity before credit bureaus can generate a FICO score. The amount of time varies based on how quickly lenders report credit account data and the credit scoring formula used.

However, it may only take a month for a credit account to appear on your credit report. Most creditors report accounts at the end of the first billing cycle. If you apply for fast cash loans online, you may see the account on your credit report within one or two months of approval. 

What Are Credit Bureaus and How Do They Work?
How Long Does It Take to Get a Credit Score After Opening an Account?

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