How to Build Credit Without a Credit Card

When starting out on your credit-building journey, you might be discouraged to learn you don’t qualify for many types of credit cards. This can feel like a catch-22. You could be thinking that without a credit card, you can’t build the good credit needed to get a credit card.

But do you always need a credit card to build your credit? Not necessarily!

In this article, we’ll discuss how to build credit without a credit card and offer alternative credit-building strategies.

What makes up a credit score?

A person’s credit score consists of five factors: credit history, credit utilization ratio, length of credit history, credit mix, and new credit. Each factor contributes a certain percentage toward your credit score, so some weigh more heavily than others.

Credit history (35%)

Your credit history is the largest factor contributing to your credit score. Credit history represents how often you’ve made your payments on time in the last seven years. It also shows any foreclosures, bankruptcies, or liens that may count against your credit history.

Credit utilization ratio (30%)

The next largest factor in your credit score is your credit utilization ratio, also known as your credit utilization rate.

Credit utilization is the amount of debt you owe divided by the maximum amount of loans and credit you’ve been approved for. For example, if your credit card has a credit limit of $1,000 and you currently owe $200 on the card, your utilization rate is 20%. The lower your credit utilization ratio, the better.

Length of credit history (15%)

Every year you have open lines of credit positively affects your credit score — especially with a history of on-time payments. Multiple lines of credit count as separate credit history lengths, which can also increase your credit score.

Credit mix (10%)

Having a healthy mix of credit across different types of expenses demonstrates responsible financing and presents you as a lower-risk borrower than someone who only has one type of credit. For example, having an auto loan, mortgage, retail credit cards, and traditional credit cards demonstrates a healthy credit mix.

New credit (10%)

New credit is one of those areas that requires finesse because opening multiple lines of credit at once is a red flag for lenders. But having nothing but old credit accounts can also raise concerns with lenders who might wonder why you haven’t been approved for new credit lately.

Periodically opening a single new line of credit can add to your credit mix, start a new credit history, improve your overall credit utilization rate, and give you the opportunity to build a strong credit history of on-time payments.

Where do credit cards fit into my credit score?

Credit cards can contribute to all five factors, so they do make a significant impact on your overall credit. But a credit card is just one type of financial product. If a traditional credit card isn’t an option for you right now, there are other ways you can start building credit.

What else can I do to build a good credit score?

There are other steps you can take to build credit without relying on a credit card:

Apply for a credit-builder loan

Credit-builder loans operate in the reverse order of traditional loans. When you’re approved for one, the money is placed into a savings account or certificate of deposit (CDs). Once you finish making all the loan payments, you then have access to the account’s loan funds. In the meantime, all the payments are reported to the credit bureaus, which can help you build credit.

Get an Installment Loan

Many types of loans fall into this category. Auto loans, student loans, and personal loans are all considered Installment Loans because you repay what you borrow in regular installments. If your lender reports your payment activity to the credit bureaus, making on-time payments can help you establish a positive payment history.

Pay your bills on time

Traditionally, utility companies and wireless providers don’t send payment information to the credit bureaus unless they’re reporting accounts sent to collections. You may be able to use services like Experian Boost to manually report your on-time monthly bill or rent payments, but simply paying all your monthly bills on time can be one of the easiest ways to build credit.

Become an authorized user

Being added as an authorized user on a family member's credit card can help build credit. Doing this allows you to piggyback off the primary accountholder's established credit history. There is a risk to the primary accountholder, so you’ll want to make sure you don’t do anything to negatively impact their credit.

Are credit cards the best way to build credit?

While a credit card is an effective way to build credit, it’s not the only option. Finding other ways to demonstrate mature financial behavior can go a long way toward creating a good credit report. On-time payments for the loans and accounts you currently have can make just as big an impact on your credit score as a credit card would.

I’ve never had credit – why is my credit score low?

For young adults living on their own for the first time, it can be frustrating to start with a low credit score. It may help to know that the average score for 18-year-olds in the US is 679, so you’re not alone.

While a lack of credit history means you haven’t developed unhealthy credit habits, it also means you don’t have a pattern of responsible behavior either. Without a credit history, you’re an unknown risk to lenders.

Start building credit without a credit card

Fortunately, you can show lenders you know how to make smart money decisions – and you can start by simply making all your payments on time.

In the meantime, if you need to borrow money to cover an emergency expense, we may be able to help. Visit your nearest Advance America location in person or apply for an online loan today.

About the Author

Bree Ewers has contributed to Advance America since 2023. Writing from her home office in Portland, Oregon, she shares a relatable perspective on the financial triumphs and challenges many readers face.

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