Good credit is essential for many financial milestones, like getting approved for a mortgage. If you have no credit history or want to improve it, the first thing many things about is getting a credit card. However, that might not work if you don’t qualify to get a card. This article explains how to build credit without a credit card.
Become an authorized user
Becoming an authorized user on someone else’s credit card, like a family member or friend, is among the easiest and quickest ways. This allows you to piggyback off the cardholder’s credit, and since you don’t have liability for the card, it is risk-free.
The most important thing is to ensure the primary cardholder has good credit, uses the card responsibly, and pays on time.
Pay bills and rent on time
Rent and bills like internet, phone plans, cable, and energy are among the most recurring and can go a long way to building your credit score. While many landlords don’t report tenants’ rent payments, you can request your landlord to report your payments to credit bureaus.
Alternatively, you can use services like Experian Boost, Rent Reporters, and Rental Kharma. When choosing a utility provider, ensure they report their clients’ payment information to a credit bureau.
Apply for loans
Getting a loan with bad credit is challenging but not impossible. One of the most common loans to look into is a credit builder loan. These loans have low interest and give out small amounts, typically $300 to $1,000.
Like traditional loans, they have a fixed repayment period where you make monthly payments plus interest. However, the money remains in a secure account that you can’t access until you finish all the payments. The bank transfers the loan amount plus any interest earned minus fees.
A personal loan is a good option if you want to build your credit and use the money. These usually have higher interest rates than credit builder loans, especially with bad credit. However, having a co-signer can increase the chances of getting approved and low rates.
The most important thing is ensuring you have the money to repay the entire loan on time to avoid ruining your credit further.
A car loan is another option that might be easier to get because the car acts like collateral. They, however, have higher interest rates for people with bad credit, but making payments on time will build your credit, allowing you to refinance for lower rates later.
You can also apply for a mortgage. This is the most challenging loan to get approved for, but you can try an FHA mortgage or smaller lenders such as credit unions that are more flexible. Since it is only to build credit, ensure you go for a mortgage you can afford.
If you are a student, taking a student loan is an excellent way to build your credit. Federal student loans are the best option because they don’t require a credit history.
Manage your debt-to-credit ratio
This ratio indicates your total debts against the credit available to you. The lower this ratio is, the better for you. A good debt-to-credit ratio is 30% and lower, and you can achieve that by ensuring you repay most of your current debts.