How To Build Credit Without A Credit Card: The Fig Guide
Original Post: September 25 2020
Your credit score aims to be a summary of your past behavior with money, so future creditors (lenders) can decide if they want to lend to you. To this end, you need to demonstrate responsibility with money to build credit. But showing responsibility doesn’t necessarily mean borrowing or getting a credit card! In this post we’ll cover ways you can add data points to your credit score without taking out a credit card. To learn more about credit cards and why you might want to pick a different type of debt, you can check out our posts on What is a credit card? and The 6 Differences between Payday Loans and Credit Cards.
Fast Fig Facts: 6 Ways to Build Credit Without a Credit Card
- Credit builder loans
- Report alternate payments
- Become an authorized user
- Other types of loans
- Secured cards
- Fix mistakes on your credit report
Credit Builder Loans
If you don’t need money today, credit builder loans are a great way to build credit and savings. It’s called a loan, but isn’t actually a loan because the money is not given to you but instead put into an escrow account. Then, when you pay back the loan they give the principal back to you! If you are worried about the risk of using money you don’t have that comes with credit cards, credit builder loans avoid it by locking the loan proceeds until you pay back the loan. Our guide on credit builders can help you better understand how a credit builder loan works.
Report alternate payments
Over the past few years, credit bureaus have become increasingly more open to considering alternative payment data for your credit score. This type of data includes phone bills, utilities and rent payments. This is great news for you because you can get credit score improvement for just doing the things you’ve always done without taking on any debt! The best way to learn more about these is to contact your landlord or specific providers for each service as reporting availability will depend on your provider having the technology available to report.
Become an authorized user
Authorized users are extra cardholders on a credit card. The original credit card belongs to someone else, but you are telling the credit bureaus that you share responsibility for the payments on this card. Even though you may not pay the bill for the card, authorized user accounts still count towards your credit score. This can be a huge advantage if you know someone that you trust and is responsible with credit. Furthermore, you can get added as an authorized user without a credit check. As an authorized user, you piggyback on the original cardholder’s good credit behavior and credit history! Just be careful that the authorized user door swings both ways, if the original card holder misses payments you’re also affected negatively as the authorized user!
Other types of loans
All types of loans count towards your credit score as long as the lender reports it to the credit bureaus. If you have a student, car, home, or personal loan outstanding, that’s already contributing to your credit score. Before you look into other credit building opportunities, it’s important to make sure you have a good handle on your existing credit lines! Credit scores are unfortunately like a house of cards, years of good behavior can be undone by a few bad marks so you always want to prioritize existing debt first.
While technically considered credit cards according to some definitions, secured cards warrant a specific call out because they, like the credit builder loan, protect you from spending money you don’t have. Secured credit cards have lower approval requirements because they require cardholders to put down a cash deposit to secure the credit line. Typically the amount of your deposit matches your available credit -- $200 deposited becomes $200 in available credit. To this end, there is always cash to backup your credit card if you are not able to pay it off. Secured cards are a great alternative if you have the spare funds and can be used in conjunction with credit builder loans to increase the types of credit on your credit report. However, keep in mind that exercising the backup security deposit option may still affect your credit negatively because you are closing the card.
Fix mistakes on your credit report
While building good credit is generally a long game, there are some things that can change your credit score quickly if they apply to you! These are specifically related to removing accounts from your credit score. If you see accounts on your credit report that don’t belong to you, getting them removed can improve your credit score overnight! This includes authorized user accounts! As a general rule of thumb, removing negative items on your credit will have a larger positive impact on your credit than most individual good items because of how credit scores are calculated.
As you are thinking about ways to build credit without a credit card, keep in mind that it takes at least 6 months to build up to a good credit score. You absolutely don’t need to have a credit card to achieve a good credit score and sometimes it’s better to avoid them altogether if you think the risks outweigh the benefits! Have other questions about building credit? Not sure how to make the choice between credit building options? We’re happy to help you think about the answer, you can reach us at firstname.lastname@example.org, Facebook, Instagram, and Twitter.