Ways to Build a Credit Score Without a Credit Card [Options in 2022]

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When thinking of building a credit score, what usually first comes to mind is a credit card. And while most credit newbies opt for a secured credit card—which is a good option for those with no credit history—you don’t need one to get a head start. Namely, this article addresses the importance of how to build credit without a credit card and alternative credit.

Why Is a Good Credit Score Important?

Everyone should heed the rock-solid financial advice of maintaining a good credit score and a decent credit utilization ratio. You can leverage a good credit score for reasonable interest rates on loans. A good credit score also ensures that you have access to the best insurance premiums, housing, cell phone plans, and credit cards.

Before tackling the subject of how to raise a credit score without a credit card, you should know what a good credit score is. According to Experian, anything between 690 and 719 is considered a good credit score. Those with 720 and higher are deemed to have an excellent credit score, and those in the range of 300 to 629 are considered to have a bad score.

Consider these credit card stats per state:

  • Minnesota recorded the highest credit score in 2020 (733).
  • Mississippi recorded the lowest average credit score in 2020 (667).
  • Vermont, South Dakota, and Washington are among the states with the highest credit score.

Because your credit score is an integral part of your financial life, it’s essential to keep track of it and learn how your economic behavior affects it. In addition, you can learn how to improve your credit score without a credit card and build it, regardless of your income and age.

NOTE: You can fix your credit report by disputing any inaccuracies on it. To do so, you need to send a 609 letter to the credit bureau that created the report and explain the error. Disputing an error is free.

How to Build Credit Without a Credit Card 

Credit reporting agencies primarily rely on your credit card purchases to determine your creditworthiness. But building a credit score doesn’t necessarily require a credit card or a CD account. Note the following nine ways you can build credit without a card.

Credit Builder Loans

Credit builder loans are like training wheels. They allow you to prove your ability to repay the money in a low-risk environment and improve your savings. So how do they work?

A credit-builder loan is similar to a traditional loan in reverse. But instead of receiving a lump sum and repaying it over time, you apply for it and can access the money only after you’ve paid off the entire sum. In the meantime, it allows you to build credit without a credit card.

When you apply for a credit builder loan, your financial institution deposits the money into an account. You can receive between $300 and $2,000. But you only get access to the loan once you’ve paid it off. The payments you make are reported to the credit bureaus, meaning you’ll be able to strengthen your credit score without having to risk spending the money in advance. If you don’t have a credit history, a credit builder loan is a better option.

Keep in mind that you must pay interest on the loan. The annual percentage rate (APR) for some top-rated credit builder loans typically ranges between 6% and 16%. Some financial institutions might charge extra for the application as well.

Personal Loans

A personal loan is an excellent way to build credit without credit cards if you already have a credit history that allows you to get one at an affordable rate. To build credit with a personal loan, you need to make payments on time and repay the loan in a shorter period.

Personal loans can be fast, too—emergency loans are a type of personal loan you can get on the same day you apply. This type of personal loan can be granted to bad credit and good credit.

Even the top personal loans generally have a higher APR than credit builder loans, which can also be helpful to build credit without credit cards. You’ll likely see elevated APR if you have previously defaulted on a loan or have a limited credit history.

Car Loans

If you’re in the market for a vehicle, then getting a car loan is a good idea if you wish to use the opportunity to build your credit score. Car loans add to your credit history and can significantly improve your credit score without a credit card, provided that you pay on time. 

But opting for a car loan might temporarily take some points off your score because it adds a hard inquiry to your credit report. But if you make your payments regularly, it offsets the points you lost because you’ll have a decent track record of on-time payments.

Before applying for a car loan, remember that you might receive an unfavorable interest rate if you already have a poor credit score. Of course, you can circumvent a bad interest rate by getting someone to cosign on the loan, but it’s a risky move.

Becoming an Authorized Person

Suppose someone adds you as an authorized user on their credit card. In this case, you could potentially build a good credit score without a credit card (as you’re still not its owner) because even if you’re not the primary holder, the credit card’s activity will be added to your credit card

When you become an authorized user, both you and the primary holder of the card can use it to make purchases. The primary holder remains responsible for the account and all payments, but the credit card company ties your credit to the card owner. Therefore, if the cardholders are late or have missed payments, it will reflect both parties’ credit reports.

If you have a history of poor money management and you want to build credit without a credit card in the mix, you can ask them to keep your credit card and piggyback off their credit activity.

Close Existing Debt

If you already have existing loans or perhaps a medical debt, then now is the time to pay for it. Making payments on their due dates is essential to building a good credit score, as each payment is added to your credit report. Defaulting on a loan, late or missed payments will have the opposite effect. You can take such steps as scheduling automatic payments or setting up reminders on your calendar to avoid late charges.

Rent Payments

If you’re a tenant and wondering how to build credit with no credit score, here’s your solution. Renters don’t get their on-time payments automatically reported to credit reporting agencies. But they can ask for them to be reported.

If you’re a renter, you can ask your landlord to report your payments or use a third-party service, such as RentReporters, RentTrack, or PayYourRent, to do the heavy lifting for you. These companies usually check with your landlord if you’ve paid your rent on time and then report it to the credit agencies. On average, they charge less than $10.00 a month, not including setup fees.

These points won’t be reflected in your FICO score but can still strengthen your overall credit history.

Student Loans

One of the ways to build credit without a credit card is through student loans. Students often look for ways to avoid taking student loans out by working part-time jobs and applying for scholarships. But while they can rack up significant debt over time, the US currently records $1.73 trillion in student debt.

Student loans can help you build your credit score from scratch in a positive manner if you make on-time payments. They’ll also make your credit report more versatile.

But taking out a student loan solely to build a credit score is not the best idea. But if you’re going to get one, it might contribute to a good credit score, provided that you pay on time.

Peer-To-Peer Loans

Building credit without credit cards does not exclude the option of taking out loans. The main appeal of peer-to-peer loans is that borrowers can find affordable interest rates. They’re made available via platforms that bring borrowers and lenders together. P2P platforms are to borrowers what Uber is to riders.

Like any traditional credit, P2P lenders report payment information to credit bureaus. Timely payments on P2P will result in an improvement of your credit score. P2P lenders tend to be quicker in submitting overdue payments. While most traditional creditors will wait for at least 90 days, P2P lenders might only give you 30 days to submit payment.

Mortgages

Unlike renters, homeowners have their mortgage payments automatically reported to credit bureaus. The advantage of mortgages is that they help with building credit without a credit card by improving your mix of installment loans and revolving debt that accounts for a good portion of the score. And some of these come with cashback.

Keep in mind, if you plan to buy a house, you need a good credit score to obtain an affordable interest rate. And taking out a mortgage will temporarily hurt your score until you prove that you can pay it back on time by submitting payments regularly.

Key Takeaways

There are many ways to build your credit score without using a credit card.
Car, personal, and student loans can help you establish a solid credit history.
Peer-to-peer lending is an affordable way to build credit if you need a loan.
Building credit without credit cards is possible with a mortgage. It will significantly raise the limit when it comes to your score, provided that you submit regular payments.
Timely rent payments can be reported to credit reporting agencies but not reflected in your FICO credit score.

Is an Alternative Credit Score a Valid Option?

Alternative credit scoring was born out of a system that solely relied on credit history reported to the US’s three major credit recording bureaus: Equifax, Experian, and TransUnion. The information collected by these companies is calculated to determine your FICO credit score and your creditworthiness. But your FICO credit score doesn’t necessarily consider all consumer behavior—meaning those who wanted to learn how to build credit with no credit card had limited options.

Alternative credit scoring widened the scope by looking at such alternative payments as rent and utility payments for credit rating to give the lender a bigger picture of the borrower’s credit risk profile. This type of scoring is ideal for credit newbies or those with limited or no credit history to show that they can make regular payments.

The good news is that alternative credit data can give you an Experian boost. The company—with Equifax and TransUnion—has committed to including alternative credit data when a creditor looks at your credit history.

The alternative scoring model has risen in popularity in recent years primarily because it provides a solution to those who wish to know how to build credit with no credit history and shows more accurate credit scores, especially those of credit newbies.

NOTE: The Consumer Financial Protection Bureau released a report in 2021 which found that 26 million Americans (11% of the adult population) are ‘credit invisible’, meaning they have no credit history under the traditional credit system.

Conclusion

Can you build credit without a credit card? Yes, but you must show that you’re responsible. While you don’t need a credit card to build a good credit score, you do need to be consistent and make on-time payments, regardless if it’s rent, mortgage, car or student loans, or your cable and internet bill. Keep in mind that some of these don’t count into your FICO credit score, but, hopefully, with the rise of alternative data scoring, your potential lender will consider them when applying for a loan.

FAQ

How to build credit fast with no credit card?

You don’t need a credit card to build a credit score. How fast you can achieve that depends on your situation. If you’re a homeowner, a mortgage is the best alternative to choose.

How long does it take to build credit without a credit card?

It will take at least six months to establish a FICO credit score once you’ve opened at least one account that has been reported to the credit bureaus. This is because your FICO credit score (and alternative credit score) makes your consumer behavior visible to creditors.

How can I easily build my credit?

The easiest way to build a good credit score is by making regular payments, regardless of whether it’s a loan or rent/mortgage bills. When it comes to learning how to build credit without a credit card (or with one), making on-time payments ensures that you maintain a good credit score.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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