How to build credit without a credit card

By Matt Mayerle
Modified on June 7, 2023
how to build credit without a credit card

A solid credit history is a vital aspect of optimal financial health. It can be nearly impossible to access the required financial products for some of life’s major transitions without some kind of established credit. 

Your credit report is crucial to obtaining an auto loan for a new car, being approved for a mortgage to purchase your very first home, and the ability to cosign for when your child needs student loans for college. 

So, the question is, how does one build credit? The go-to answer, and the one you are likely most familiar with, is credit cards. Although a credit card is one of the simplest ways to build up a credit history, it is definitely not the only way, nor is it mandatory for credit-building. 

Many individuals are against the use of credit cards on principle. And others have finally paid off out-of-control credit card debt and don’t want to fall down that rabbit hole once again. 

There are many ways to build credit without a traditional credit card. So, we have you covered if you need to know how to build credit without a credit card.  

Having Credit Is Important

Building credit is an essential part of rounding out your financial portfolio. A consumer’s credit report affects more aspects of their daily life than they are likely aware of. 

When applying for a loan or credit card, the lender will always check your credit report to measure your creditworthiness. You need credit to get auto loans, mortgages, personal loans, and retail cards. Landlords and leasing agents check your credit report before approving you for an apartment. Some employers even take a look at your credit when doing background checks. 

It’s necessary to build your credit to be taken seriously by financial institutions you wish to do business with. Its importance cannot be overstated, so it’s a good idea to familiarize yourself with the concept of credit and how it gets established.

How Credit Is Built

To understand precisely how credit is built, it is best to learn how credit bureaus compile credit reports and how credit scores are calculated using the information in those reports.

The Credit Bureaus

There are three major credit bureaus – Experian, Equifax, and TransUnion – which are responsible for compiling your credit reports. Lenders and credit card companies report account and payment information deemed relevant to your creditworthiness. 

In addition to compiling the account information reported to them, the major credit bureaus also gather important identifying details and relevant filings from public records.

Your Credit Report

The credit bureaus include four categories of information on your credit report: personally-identifying information, credit accounts, credit inquiries, public records, and collections. 

The identifying details are not used to measure credit risk but rather to connect you to your credit report. This section includes your name, date of birth, address, Social Security Number, etc. All current and historical credit accounts are reported in the accounts section, including the following information: 

  • Name of the lender, credit card issuer, bank, or credit union.
  • Date the account was opened.
  • Type of account – i.e., credit card account, student loan, installment loan, online fast cash loans, car loan, etc.
  • Account status, credit limit, and balance.
  • Payment history.

The credit bureau focuses next on your credit inquiries, including applications for new credit, authorizing a credit check, and every time a financial institution pulls your credit report. And lastly, credit bureaus collect public records information from state and county courts on bankruptcy, liens, foreclosures, civil suits, and judgments. 

Your Credit Score

Credit scores are calculated using the information credit bureaus include in your credit report. However, the FICO credit score model uses a particular division of five metrics to come up with the three-digit number that is your score. 

The five categories used to calculate your FICO credit score are:

  • Payment History → 35% of your credit score. 
  • Amount Owed → 30% of your credit score.
  • Length of Credit History → 15% of your credit score.
  • Credit Mix → 10% of your credit score.
  • New Credit → 10% of your credit score.

The most significant aspect of your credit score is your payment history which is why monthly payments on credit card accounts are often suggested as a way to build your credit history. 

However, many other ways to build your payment history outside of credit card payments exist. You can improve upon your credit history along with all the different metric categories of your credit score with a personal loan, a credit-builder loan, or one of the other numerous credit products. 

7 Ideas for How To Build Credit Without a Credit Card

Luckily, credit bureaus gather significantly more information than just that which pertains to a credit card account. Whether you have a limited credit history or a damaged credit report in need of repair, there are ways you can build your credit from the ground up without a credit card.

We have compiled a list of seven ways to establish a positive credit history without relying on a traditional unsecured credit card. All of these financial institutions and/or products report information to credit bureaus and will contribute to your credit-building efforts.

#1 Credit-builder Loans

A credit-builder loan is a particular type of personal loan that exists for the sole purpose of helping consumers build credit. Credit-builder loans serve as an alternative for individuals with too sparse of a credit report to qualify for a more traditional installment loan. Offered by credit unions or banks, a credit-builder loan essentially functions as an account for establishing credit.

Unlike a standard personal loan, where you receive funds that you later payback, a credit-builder loan works a bit differently. The credit union or bank puts a cash deposit between $300 and $1,000 into a special locked savings account. Instead of having access to that bank account right away, you make fixed monthly payments over six to 24 months. Only when the loan payments have been completed can you access the funds in the savings account. 

Every one of the loan payments made on the credit-builder loan is reported to the credit bureaus so that you are continually building credit through the life of the loan. Even though it primarily functions as a glorified savings account, the main difference with a credit-builder loan is that your credit report benefits from every dollar saved. 

#2 Become an Authorized User

You don’t need to have a credit card of your own to reap the benefits of a credit card account. A family member, a close friend, or your spouse could add you as an authorized user on their credit card. Becoming an authorized user on another person’s credit card causes that credit account to appear on your credit report. 

As an authorized user, the credit limit and monthly payments will build credit on your report without your own credit card. However, it is essential for you to be sure that the primary cardholder is handling their credit card responsibly and making on-time payments when agreeing to become an authorized user, as any mishandling could hurt your credit score. 

#3 Get an Auto Loan

If you have been considering purchasing a vehicle, now could be the perfect time to kill two birds with one stone, as a car loan can significantly build your credit. An auto loan will function as a standard installment loan regularly reported to the credit bureaus. 

Once you take on a car loan, the credit account will appear on your credit report and diversify your credit mix. Making on-time payments each month on your loan will build credit history and improve your credit score without a credit card. 

We don’t suggest taking out an auto loan if you have no need for a new car simply for the sake of attaining good credit. But if you were already considering the purchase, you can use it to your advantage even if you’ve already set money aside to buy a vehicle outright.

#4 Consider a Personal Loan

If your credit history is not entirely non-existent, you might not need to use a credit-builder loan to benefit from loan payments on your credit report. A small personal loan could be an excellent way to build credit. You can get a personal loan from a local credit union or one of many online lenders. 

Personal loans can be costly if you don’t get affordable interest rates or if you take too long to pay them off. However, if you approach it strategically, you may be able to make a significant impact on your credit score with on-time payments on a minor amount of borrowed money without accruing too much interest.

#5 Pay Down Your Federal Student Loans

Unfortunately, a major portion of Americans have student loan debt. Despite debt never being a thing to rejoice over per se, it can be used to your advantage to build credit. Student loan servicers consistently report payments to the credit bureaus. 

Every monthly payment you make on your student loans will build your credit. Paying down a student loan faster than scheduled could also improve your credit utilization ratio, which will positively affect your overall credit score. 

If you are struggling to afford the monthly payment on your student loans, apply for an income-based repayment plan. Getting a smaller minimum payment will allow you to reduce the risk of late or missed payments that could harm your efforts to build your credit.

#6 Use Secured Cards

What credit-builder loans are to personal loans is what a secured credit card is to traditional credit cards. Whether you can’t qualify for a standard unsecured credit card or want to avoid them altogether, a secured credit card can be an excellent alternative to build credit.

Similar to credit-builder loans, a secured credit card is not just borrowed money; it is secured with a cash deposit equaling the credit limit. All your on-time payments on your secured card will be recorded on your credit report, helping build your credit.

Using a secured card for some time could allow you to build credit to a point where you can qualify for an unsecured credit card if you wish to have one.

#7 Have Bill Payments Reported

Bill payments you make as part of your typical monthly expenses like rent payments and utility payments do not appear on your credit report. However, there is a growing number of consumers who think they ought to be included. One of the credit bureaus, Experian, now offers a service called Experian Boost which allows you to build credit through bills like rent payments.

Experian Boost gets utility payments, and rent payments reported on your credit file. If you are diligent about paying your bills on time, you deserve to benefit from that in a tangible way. Experian Boost makes it possible for you to build credit from your everyday expenses without a credit card.

When You’re Ready for New Credit Cards, Use Them Wisely

Once you establish credit and attain the good credit score you have been working towards, you might feel ready to apply for a credit card. If you choose to continue without a credit card, we advise you to diversify your loan portfolio and keep up with the ways to build credit listed above to maintain your good credit.

If you add credit cards to your credit mix, be diligent about using them responsibly so that you don’t find yourself deep in debt or damage your credit report. Don’t rely on your credit cards like they are a bottomless bank account, and keep your credit utilization low. Your credit utilization ratio should always be under 30%, so you have significantly more available credit than balances owed.

With a well-established credit history and a solid credit score, all manner of financial opportunities will open themselves up to you, and you can begin laying the foundations of a bright future for yourself and your family.


How to Build Credit Without a Credit Card – Experian
12 Easy Strategies to Build Credit Without a Credit Card

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