If you’re like millions of Americans around the country, you’re allergic to debt but still want a great credit score. Credit cards aren’t your thing. You pay cash for everything when you can help it and you do your best to save money.
At some point, however, you’ll still need a good credit score. After all, credit exists to allow you to purchase large items that you would not normally be able to afford.
Do you have $30,000 hanging around to pay for that car? If you do, good for you! Most people don’t.
Credit cards are what most people think of when they imagine building credit. They allow you to borrow relatively low amounts, come with beneficial consumer protections, and are extraordinarily easy to use.
You might be shunning credit cards for one reason or another, however. Fair enough. What are some ways that you can build your credit without credit cards? Let’s take a look.
Often the first debt that individuals incur on their own is a student loan. It’s a fact of our modern world: if you want to go to college, you more than likely have to take out a loan to do it.
Student loans come in a variety of sizes and types, from private loans from name brand banks (found through Credible.com, for example) to federally-subsidized loans. They also offer a whole host of different interest rates, tools for repayment and requirements for approval.
It can seem like a boon to get a whole bunch of money with a fairly low interest rate that you won’t have to worry about until a way down your financial road. Remember, however, that you will have to repay those loans one day and the more debt you carry, the more difficult it may be to manage your finances down the road.
Unless you live smack dab in the middle of a city with excellent public transit, it’s pretty likely you’ll need (or maybe just want) a car to get around. Purchasing a car is a great way to quickly increase your credit score.
This is one of the loans that a responsible high school student might be able to get a jump on, as well. Auto loans are generally easier to get because the extension of credit is directly tied to the asset.
If you don’t pay your loan, the lender can come repossess your car. This means that more people are able to access auto loans, even those with damaged or no credit.
Mortgages are possibly one of the best ways to build your credit report and score without credit cards. Taking on and paying your mortgage on time every month shows a lender and the credit reporting agencies that you are able to manage your finances and credit over the long term.
Mortgages are generally 30 years. This means that the payments are lower by percentage than some other types of loans. This also means that people tend to get more house than they can reasonably afford. Lenders also know that there are costs that come along with a mortgage and they take that into account as well.
Of course, building your credit report using a mortgage requires that you get a mortgage first, so this may not be for everyone.
Rent and Utilities
Technology and the internet has made it much easier to pay for and collect payments for things like rent and utilities. It also means that your payments are running through computer systems that can easily share your payment history with the credit bureaus.
Services like RentTrack and PayYourRent report your payment history to credit bureaus by paying your rent on your behalf. If your landlord doesn’t already report your on-time payment history to credit bureaus, consider using a service to get credit for your good financial habits.
Alternative data is so new that there is really very little to say about it. Because we’re used to paying our bill on time, many reporting agencies are now moving toward harnessing as many of our payment obligations as possible.
This includes your cell phone, television, and internet access bills. Both the industry and regulators are looking at whether it is feasible to mandate the inclusion of these types of bills in your credit history.
Personal loans come in a variety of different shapes and sizes. If you’ve ever seen signs or advertising for “No payments until 2025!” or “Finance your furniture purchase!” you’ve seen a type of personal loan.
Personal loans also include store credit cards (those that can only be used in the store in which they’re issued) and even straight money loans. Before taking a personal loan, ensure that the lender plans to report your payment history to credit bureaus.
Secured Loans & Cards
Secured credit cards may seem similar to your standard credit card on the surface, but they have one main difference. When you open a secured credit card, you submit a deposit.
This deposit is used as your credit limit and, if you fail to make payments, the credit card issuer takes your deposit. These also come in loan form.
How can other people help you?
If a family member or close friend has a credit card and is willing to let you be an authorized user, you can both benefit from positive spending habits. Keep in mind that that main card holder is responsible for the card’s payments.
This means that if you fail to make payments for the things you purchase, the main card holder is responsible to pay. This can place an exceptionally difficult burden on a family.
Cosigners work the opposite way from authorized users. Let’s say your parents have great credit and agree to cosign a loan for you. This means that they personally guarantee that you will repay your loan or credit card. If you don’t, both your and your parent’s credit scores could suffer.
If you do make on-time payments however, being a cosigner or an authorized user on a card allows you to essentially piggyback on someone else’s good credit. A pretty good deal!
You don’t necessarily need a credit card to build a credit history. There are a variety of different instruments available to you to build that credit. Remember, however you choose to do it, building your credit is essential to achieving your financial goals!