If you ever need to borrow money for a major purchase, apply for a rental home, or finance a car, solid credit is important and could very well decide whether you get the loan.
Of course, if you’ve been responsible with your credit cards, those are surefire ways to build credit and you’ll probably get a loan, but what if you’re just starting out or have bad credit and won’t qualify? Here are 15 ways to get around that.
How to Build Credit Without a Credit Card
The good news is you can build credit without a credit card; here are 15 ways to build credit that won’t involve getting an unsecured credit card.
1. Get a secured credit card
When comparing secured and unsecured cards, a traditional credit card is an unsecured debt, and a secured card is a line of credit secured by a security deposit.
Most card issuers offer secured products, and your credit limit will typically be equal to the amount you deposit. Since the lender has your money, these credit cards have minimal risk of default for lenders. A few even offer cash back to make applying for a card more attractive. When you’re deciding on a secured card, try to find one that doesn’t charge an annual fee.
Secured credit cards are different from prepaid credit cards (which you buy at a retailer or online).
2. Ask about a rent-reporting service
Though many people with limited credit history have a record of paying rent on time, that information usually doesn’t show up on their credit reports, meaning it doesn’t help their credit scores.
If you’re a renter, ask your landlord about using a rent-payment reporting service. These are becoming increasingly popular but aren’t mainstream just yet.
All three of the major credit bureaus — Experian, Equifax and TransUnion — will include rent information if they receive it.
The cost of the service can range from free (if your landlord agrees to foot the bill) to as high as $100 per month.
The service lets property owners enter information about their tenants’ payment history each month and submit it to the credit bureaus. Some services can be hired independently by you and only require that your landlord verify your payment information.
To use the service to build credit, you’ll need to be certain exactly which credit bureaus will get payment information — and which credit scores will take those payments into account. For example, it likely won’t impact your overall FICO score, but newer versions of FICO — FICO 9 or FICO 10 — have started using rent as a factor. VantageScore usually will take rent information into account. Look for a reputable low-cost option.
- Esusu Rent reports to all three credit bureaus and charges a flat annual rate of $50
- PaymentReport reports to Equifax and TransUnion for a $49 annual fee
- Pinata reports to at least one major credit bureau and is free for renters
3. Add utility payments and other bills to your credit file
While you can’t self-report utilities and other recurring monthly payments to the credit bureaus, there are some ways to get credit for these payments. You could ask any creditor that bills you monthly to report your payment information to the credit bureaus. You also could sign up for a third-party service like Payment Reporting Builds Credit. PRBC differs from the other credit bureaus because consumers self-enroll and report their own non-debt payment history. They can use alternative data, including on-time rent, utilities, cable, telephone, and insurance.
4. Sign up for Experian Boost
Through the credit bureau Experian, you can enroll in Experian Boost. This is a free feature that helps improve your credit score when you pay monthly bills on time. Using Boost lets your streaming, phone, and utility payments “count” toward your Experian credit score. This service allows you to improve your credit score with on-time HBO, Hulu, Disney+, and Starz bill payments.
It’s easy and anyone can sign up for Experian Boost, but consumers with little to no credit and those with very poor to fair credit scores benefit most. Out of each FICO credit tier — very poor, fair, good, very good, and exceptional — 87% of people with a poor credit score who used Experian Boost saw their FICO score increase. Among those with a fair score, 63% saw their scores increase.
Overall, Experian Boost has been helpful to users with “thin files,” less than five accounts in their credit file, and has increased their FICO score. Other statistics included:
- In general, 85% of thin-file consumers who used Experian Boost saw their FICO scores rise
- On average, consumers saw an increase of 19 points
- 15% of those users entered a higher credit score range
- 41% expunged their thin-file status
5. Become an authorized user
Another tip for building credit is to ask a parent, family member, or friend to add you as an authorized user on their own credit card account. This is done without a credit check, which makes it easy to obtain a starter card if you have bad credit. Even if you never use the card — or don’t even have a physical card — you’ll get credit for account activity and payments. Make sure the primary cardholder’s card activity is in good standing, and have an honest discussion beforehand about whether you plan to use the card, and what the accountholder’s expectations are.
6. Improve your credit utilization ratio
Your credit utilization ratio makes up 30% of your FICO score.
A credit utilization ratio is the sum of all balances, divided by the total of your cards’ credit limits. For example, if you have two credit cards, each with a $5,000 limit, and owe $2,500 on one and $4,000 on the other, your credit utilization ratio is $6,500 divided by $10,000, or 65%.
With that hypothetical credit line of $10,000 per month, you’ll want to carry a balance of less than $3,000 to keep that utilization ratio below 30%. For the maximum credit score boost, try to use no more than $1,000 of your available credit each month. And always try to pay balances in full each month, which not only will boost your credit score but also will save you quite a bit of money in interest.
7. Make all of your monthly payments on time
Payment history makes up 35% of your credit score. Even one late payment can pull your score down and remain on your credit report for up to seven years. While most creditors don’t report a late payment until it’s 30 days past due, just paying a few hours late may turn into a large late fee and extra interest charges. If you miss the payment deadline by a few hours, always try to negotiate with your credit card issuer to see if they will waive the fee.
8. Take out a credit-builder loan
A credit-builder loan is a small loan — amounts are usually less than $1,000 — in which the money is held on your behalf in a secured savings account or certificate of deposit while you pay off the loan. These loans are designed to build credit while you also save money. You’ll make fixed monthly payments with interest for a specified loan term, and once the loan is fully paid, the CD unlocks and you receive the funds, minus any interest and administration fees.
You should be able to obtain credit-builder loans through some banks, credit unions (usually called a shared secured loan), or through an online lender. Self offers a loan that earns particularly high ratings. The lender will report your monthly activity and payment to the three major credit bureaus that generate your credit reports.
9. Try a passbook loan
Passbook loans are similar to credit-builder loans, only you don’t have to wait until the loan is fully paid off to access your money. Your financial institution will hold or freeze funds in your traditional savings account, and you regain access to your funds during repayment. You may be able to borrow 90% to 100% of your account balance, and interest rates tend to be low since you’re borrowing your own funds.
10. Apply for a personal loan
If you’re looking for a fairly simple way to build credit, a personal loan is one of the easiest methods — even after bankruptcy. The interest rate you pay will likely e lower than what a credit card would total, and many retailers partner with lenders to offer low-interest financing. So if you need a microwave oven, you might be able to get a small loan from a retailer like Best Buy that offers a promotional interest rate. If you start off with a small loan and pay it off on time — or even early — it will bump your credit score.
But don’t even consider taking out a new loan unless you’re confident you can make the monthly payment; use a debt calculator to calculate what is within your budget.
11. Take advantage of student loans
Federal student loan payments are reported to the credit bureaus and can get your credit score off to a good start as long — as you don’t fall behind on loan payments. If you’re having trouble repaying a student loan, talk to your lender about changing the loan terms or consolidating loans. Overall, making on-time student loan payments will help your credit score.
12. Sign up for Kikoff Credit
San Francisco-based Kikoff Credit gives you access to a $500 revolving line of credit that does not expire so that you can use it to build a credit history. The company says the service is like a credit card without interest or fees. Your line of credit can only be used to make purchases at Kikoff’s online store. Kikoff reports payments to two credit bureaus and provides access to VantageScore credit scores.
Kikoff costs a flat $2 per month, requires no credit check and says you don’t need to link a bank account. It doesn’t charge administrative fees, annual fees, late fees or finance charges and offers a 0% APR.
13. Get a Grow Credit Mastercard
Considered one of the best credit cards to build credit using everyday purchases, Grow Credit Mastercard lets you establish credit as you pay for qualifying monthly subscriptions, including eligible bills, TV, music, and other streaming services. You’ll be expected to pay off the bill in full monthly and will build credit as you do so.
The card’s primary features include:
- No fees
- No security deposit for all but one membership plan
- No interest charges
- No credit check
To apply for the card, connect your bank account and add your subscriptions. Then use the new card as your payment method to make consistent payments.
The Grow Credit Mastercard offers four membership plans, depending on your eligibility; these plans let you build credit with qualifying subscriptions, each with a different limit.
- Build: (free): This includes a $17 monthly spending limit on various subscriptions.
- Secured: ($2.99 per month): This paid option is designed for applicants who may not qualify for the Build Plan. Applicants must have a bank account that’s at least a month old with a minimum balance of $1. This plan also gives you $17 per month to use toward subscriptions, but requires a $17 security deposit that will be returned after one year of on-time payments.
- Grow: ($4.99 per month): This plan provides a $50 monthly spending limit and access to more expensive subscriptions, including accounts with Verizon Wireless, AT&T and T-Mobile.
- Accelerate: ($9.99 per month): This plan offers a $150 monthly spending limit toward the same subscriptions as the Grow plan.
14. Take out a car loan
If you need a new vehicle, an auto loan may help you build credit because dealerships often offer more flexible credit requirements than traditional lenders. However, there are risks. Don’t do this simply to build credit. And be aware that anytime you take on new credit there is a risk, but the risk with auto loans can be greater than average because of the prospect of repossession if you can’t make the payments. In the long run, if you can’t afford the loan, it might hurt your credit more than help it.
15. Apply for an installment loan with a co-signer
If bad credit keeps you from qualifying for most loans, think about asking a friend or family member to co-sign for an installment loan. It can be an uncomfortable conversation, but everyone at one point was in a position to need to build credit. Make sure to show the co-signer proof that you can afford the loan, and that you’re serious about repaying it. Also make sure to keep in mind that your co-signer will also be held responsible if you default, and likely will still be expected to repay the loan if you file for bankruptcy.
Why is a credit score important?
Your credit score will determine whether you’ll qualify for a credit card or loan. It will determine your credit limit, and the interest rate you’ll pay. It could even determine whether you qualify for an apartment rental, and could be a factor in job prospects. If you’ve never applied for a credit card or loan, your credit score doesn’t start at zero. Instead, you’re considered to have “no credit.” But utilizing a service that credits you for your subscriptions can help you develop a base-level credit score early, before you really need a loan.
FICO scores range from 300 to 850:
- 300 to 579 (poor credit)
- 580 to 669 (fair credit)
- 670 to 739 (good credit)
- 740 to 799 (very good credit)
- 800 to 850 (excellent credit)
FICO scoring model
The FICO model uses the following factors to determine an individual’s score and is one you should familiarize yourself with. Here is the breakdown:
- Payment history: 30%
- Length of credit history: 15%
- Credit utilization ratio: 30%
- The mix of credit: 10%
- Most recent credit applications or hard inquiries: 10%
- Derogatory marks: While not percentage-based, bankruptcies, accounts in collections, and foreclosures all damage the overall score
Numerous companies offer free credit scores, and you should take advantage and get to know your score and decide what needs to be improved before opting to get a loan.
How can I review my credit history?
Checking your credit report can reveal errors and may help you better understand your current creditworthiness.
All consumers are entitled to one free credit report from each of the three major credit bureaus per year at annualcreditreport.com. It’s important to review your credit reports once a year to look for accounts you don’t recognize, loans you’ve paid off or information that might not actually be yours but instead belongs to someone with a similar name.
The bottom line
You don’t have to carry a wallet full of credit cards in order to build a strong credit history.
A few simple — and usually inexpensive — strategies can help you get off to a good start, or fix some past mistakes.
Having a poor credit score can make it difficult to get a loan, but it’s possible. Some banks and online lenders offer products, including loans, for people with bad credit. There are even installment loans for people who’ve filed for bankruptcy.
Hiring a company is a way to fix your credit if you feel you can’t do it yourself but know it doesn’t guarantee it will be any more successful than you. There are also several credit repair scams, so be careful.
Some credit cards offer rewards, perks, fraud protection, credit building, and the ability to start a business and pay bills automatically. Credit cards are useful if you have an emergency, like an auto repair, so that you can cover an expected cost without needing a payday loan or cash advance to carry you through.