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There's nothing wrong with living without a credit card. In fact, given credit cards' average interest rate of 20.15%, it's easy to get buried in credit card debt. Still, your credit score can impact whether you can qualify for an apartment, get a decent rate on a mortgage, or even land certain jobs. Fortunately, building your credit score is possible without a credit card in your name. Here's how.
1. Become an authorized user
One of the easiest ways to build credit without a credit card is to become an authorized user on someone else's credit card. You won't actually use the card, but each time the card owner makes an on-time payment, it's reported to the credit bureaus in both their name and your name.
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There are two things to keep in mind when considering this route. The first is that you'll need the person you're signing on with to have excellent credit. After all, any late payments they make also go on your credit report.
The second thing to remember is that anyone willing to allow you to sign onto their account is doing you a huge favor. You owe it to them not to jeopardize their credit score in any way, such as by misusing their credit card (if you have access to it).
2. Take out a credit builder loan
As the name implies, a credit builder loan is specifically designed to help you build your credit score. Unlike a typical loan that gives you money upfront, the lender deposits the amount you borrow into a savings account or certificate of deposit (CD) that you can't access until you've paid the loan off.
In essence, you pay the loan first and then receive the money. Let's say you take out a credit builder loan for $500. The lender deposits that amount into a safe account, and you make regular monthly payments. Each on-time payment is reported to the credit bureaus, helping you establish or build a credit score.
Keep in mind that you'll have to pay a one-time fee to set up a credit builder loan and that the money you pay toward the loan carries interest. The interest paid on the loan can be comparable to the rate carried by credit cards, so your best bet may be to borrow as little as possible.
3. Apply for a personal loan
You may not need a credit builder loan if your bank or credit union will front you a small loan that can be paid back over a short period of time. Explain your situation and tell them that you're working to build your score. If you apply for a personal loan through a bank or credit union you already have a working relationship with, that may help grease the wheels. After all, they just have to check your banking history to learn how well you've managed money in the past.
If you have money in a savings account or an investment, you may be able to use those funds as collateral.
4. Sign up for Experian Boost™
Typically, payments to utility companies and streaming services are not reported to credit bureaus and have no impact on your credit score. However, Experian offers a program where payments to your utility companies and streamers like Netflix, Hulu, Disney, Acorn, Britbox, and HBO are added to your Experian credit report.
According to Experian, the average user raised their FICO Score by 13 points. Keep in mind that Experian Boost™ only ensures that these payments are reported to Experian; TransUnion and Equifax will not receive this information. And finally, not all lenders will use credit information impacted by Boost. Still, the program is free of charge, and if used properly, it can help.
Perhaps the most important thing you can do as you work toward building your score is to continue making all debt payments on time. If you're a renter, check with your landlord or management company to learn if they report your monthly rental payments. In addition, some phone companies also make monthly reports to credit bureaus.
It may take some time to get your credit score where you want it to be, but staying on top of your payments will eventually get you there.
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