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build credit without a credit card

A good credit score is the key to getting approved for the best interest rates. But building a solid credit history takes time. Using a credit card is one of the easiest ways to improve your score but it can be hard to get approved, especially for young adults who are just starting out or for people with damaged credit. If you’re looking to beef up your score but you can’t or don’t want to use a credit card, here are a few alternatives that can help get your credit on the right track.

Check out the best secured credit cards.

Rent Your Way to Better Credit

Traditionally, credit reporting bureaus didn’t factor in things like rent payments when calculating your score. That changed in 2011, when Experian announced that it would start including rent data on consumer credit reports. Now, property managers and rental payment service companies can transmit both positive and negative rental information through RentBureau.

If your landlord doesn’t report your information, you can still get credit for making your rent payments on time. At WilliamPaid.com, you can pay your rent electronically using a credit card, debit card or bank account. The site reports your payments directly to Experian. It even allows you to split up your rent payments if you have roommates. This way, you don’t have to worry about your credit suffering if someone else pays their part of the rent late.

You can also build credit using your rental history thanks rental reporting companies. Rent Reporters and Rental Kharma don’t actually process rent payments but they do collect your rental information and transmit to the credit reporting agencies on your behalf. These agencies do charge a small fee for their services but it may be well worth it if you’re looking to beef up your credit history.

Get a Credit Builder Loan

build credit without a credit card

Typically, when you take out a bank loan, the bank gives you the money and you pay it back with interest. A credit builder loan works in reverse. Instead of giving the money to you directly, it’s put into an interest-bearing account. You make regular payments on the “loan” and at the end of the loan period, the money is given back to you along with any interest that’s accrued.

A credit builder loan serves two purposes: first, it helps you to build your credit up without having to pay a ton of interest and second, it acts as a hassle-free savings account. Credit builder loans are seen as a low-risk option, for both lenders and borrowers. They’re also an easy way to establish credit without having to rack up a significant amount of debt.

If your bank or credit union doesn’t offer credit builder loans, you may still be able to improve your credit by taking out a passbook or CD loan. Essentially, you’re borrowing from yourself since your savings account or certificate of deposit acts as the collateral. As long as you’re making timely payments, it’ll help to improve your credit and you’ll be building your savings back up at the same time.

Make Your Own Credit Report

The information in your credit report is typically limited to debts relating to money you’ve borrowed, such as mortgage loans, car loans, student loans and credit cards. If you don’t have any of these types of debt, your credit file is likely to be on the thin side. The good news is that you can still build up your credit history by being financially responsible with any other payments you may have.

Payment Reporting Builds Credit is a national company that allows consumers to build their own credit file using self-reported information. The types of information you can report to PRBC include utility payments, payments for rent-to-own agreements, insurance payments, cell phone bills and rent. The information you provide won’t be transmitted to the three major credit reporting bureaus and it won’t impact your FICO score. But the site can be a useful stepping stone when you’re trying to establish credit by allowing you to see how payments impact credit scores.

The Bottom Line

build credit without a credit card

While using a credit card is a convenient way to establish your credit history, it can lead to financial disaster if you’re not careful. Paying your bills on time is the best way to improve your score and these credit card alternatives can help you establish a solid payment history.

Photo credits: ©iStock.com/fstop123, ©iStock.com/JodiJacobson, ©iStock.com/AndreyPopov

Rebecca Lake Rebecca Lake has been writing about the nuts and bolts of personal finance for nearly a decade. She is an expert in investing, retirement and home buying topics. Her work has been featured on The Huffington Post, Business Insider, CBS News, U.S. News & World Report and Investopedia. As a homeschooling mom of two, she's always looking for ways to make the most of every dollar.
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