How to Build Credit Without a Credit Card | Credit Cards | US News – US News & World Report Money | CarTailz

Using a credit card responsibly is an effective way to build credit. But it’s not the only way.

If you’ve decided that credit cards aren’t for you, you’ll be glad to know that there are many ways to build credit without a credit card. And not only can you build a solid credit history, but you can also get good credit.

How to build credit without a credit card

The keys to building credit without a credit card: Develop excellent lending habits and employ other credit-building strategies.

Before we dive into strategies, let’s take a quick look at the three different types of credit and how you can use them to your advantage.

  • Revolving credit: A credit card is an example of a revolving loan. You have a credit limit and you can use as much of your credit limit as you like. But if you have a balance, you pay interest on the amount.
  • Installment loans: A car loan or mortgage is an example of an installment loan. You pay a monthly amount based on the agreed conditions, e.g. B. the term of the loan and the interest rate.
  • Open balance: Your mobile phone or electricity bill counts as an outstanding balance. The accounts have a balance that you must pay each month and no interest is charged. Open credit accounts aren’t typically reported to the credit bureaus, but if you don’t pay the bill for an extended period of time, it could be reported to the credit bureaus.

As you can see, there are other types of credit that can help you build credit even if you don’t have a revolving account like a credit card.

7 ways to build credit without a credit card

Check out the seven strategies for building credit without credit cards. All it takes is persistence, a little creativity and time.

Pay your bills on time

Payment history accounts for a whopping 35% of your FICO score. So when you choose to pay all your bills on time, you lay a solid foundation for good credit.

Late payment can have devastating effects on your score. Do everything you can to pay bills on time. Add due dates to your calendar and set up email reminders and text notifications. If you’re confident that you’ll always have enough money in an account to pay the bills, consider setting up automatic payments.

repay student loans

I know carrying student debt is a burden, but there’s a silver lining here, too. Paying off your student loans can help you build credit.

Student loans are installment loans. You pay a certain amount every month, and when you pay on time, you also increase the payment history factor in your credit score. It is extremely important that you stay up to date with the latest student loan news.

The current deferral period has just been extended, but consider continuing to pay off your debt before payments resume.

Get a car loan

I’m not suggesting you do this unless you happen to have a good car. But when the time comes, unless you can pay for a car in cash, you should use a car loan as an opportunity to improve your score. Make sure you shop around and get the lowest interest rate you can qualify for.

A car loan is another example of an installment loan. You make a fixed monthly payment that includes principal and interest. Installment loans appear on your credit report and affect your score. As long as you make payments on time, you’ll develop a good credit history.

A car loan, like a mortgage, is a secured loan. That means the loan is tied to an asset like your house or a car. However, before you apply for a mortgage, work on getting your score as high as possible. A higher score will save you thousands over the life of the loan.

Apply for a personal loan

Do you need to do some DIY work or perhaps pay for braces for your child? A personal loan can help improve your credit score. This is also an installment loan.

However, unlike car loans and mortgages, a personal loan is an unsecured loan. This means that it is not tied to any fortune. The creditor cannot seize the property for lack of payment and this increases the lender’s risk. As a result, it can be more difficult to qualify for these loans at a low interest rate.

Get a credit builder loan

If you have low credit or no credit at all, this type of loan can really boost your credit history. You don’t need a good score to qualify, but you do need to have an income.

While traditional loans lend you cash up front and trust you to make monthly payments, credit builder loans actually work the other way around. As a rule, you deposit the amount of the construction loan in a bank account. You make monthly payments on the loan, and after you pay it off, you get your money back plus the interest you earned.

The lender reports your payment history to each of three credit reporting agencies: Equifax, Experian, and TransUnion. That way, your payment history is included in your credit reports and can have a positive impact on your score.

Look for these loans at credit unions and community banks. And read the terms carefully as these loans may differ depending on the institution.

Get credit for rent payments

Traditional credit models do not include rent payments. However, it is possible to include your rent payment history in your credit reports.

There are third party services like Rental Kharma that will report your rental payments to the credit bureaus. However, reporting to the bureaus does not guarantee that they will be considered by the credit scoring algorithm. Whether it helps your score depends on the version of the score the bureau uses.

But it’s worth a try. First, ask your landlord if they use any of the services or would be willing to report your rent. Note: These services are not free. Read the terms so you know how much you have to pay each month.

Use a tool to improve your credit score

There are two tools that can get your score off to a flying start: Experian Boost and UltraFICO. You have to sign up to use the tools, but both are free.

Experian Boost, created by Experian, is a product that factors monthly bills like phone, utilities, and streaming services into your credit score. After you sign up for the feature, your selected invoices will appear on your Experian credit report. The goal is that you get credit for on-time payments you make each month. If you apply for a loan and the lender uses Experian, this feature will include a positive payment history in the score calculation.

Note, however, that this only applies to your Experian credit report. If your lender requests a report and credit score from either of the other two bureaus, the score increase you would receive from Experian Boost will not be applied.

Similarly, UltraFICO includes your banking activities, such as B. Your checking and savings accounts. When you apply for a loan, ask the lender if they use UltraFICO.

There are only certain situations where these tools can be applied. But if you’re trying to improve your score, it makes sense to explore all of your options.

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