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12 Easy Strategies To Build Credit Without a Credit Card

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In a Nutshell

Using a credit card is not the only way to build your credit. Many companies can report your payment history to the major credit bureaus, including lenders for your auto loan or mortgage, as well as any utility companies that bill you monthly. You can also build your credit over time by taking advantage of certain lending opportunities. Here are 12 easy ways to build your credit to get you started.

Written by Mark P. Cussen, CFP® , CMFC.  
Updated September 17, 2021


Although using a credit card can be a good way to build your credit history, it is by no means the only way. There are many ways to build your credit over time because many companies report your payment history to the major credit bureaus. In addition to credit card companies, lenders for your auto loan or mortgage, as well as any companies that bill you monthly (think utility companies or cell phone providers), may report your payment history. You can also build your credit over time by taking advantage of certain lending opportunities. 

If you aren’t sure how to build your credit without using a traditional, unsecured credit card, that’s okay. Here are 12 easy ways to build your credit to get you started. 

Add Utility Payments and Other Monthly Bills to Your Credit File

You can self-report your utilities and other recurring monthly payments to the credit bureaus — Experian, TransUnion, and Equifax. But you may have to take steps to get this activity reported. One of the best tools that you can use to ensure that these payments are reported to the credit bureaus is Experian Boost. With this tool, you can report the payments you make to your utility company, cell phone carrier, and streaming services such as HBO. When you make your payments on time, you’ll build your credit report. You will have to digitally connect your bank account to use this service, which electronically monitors your payments each month. 

Alternatively, you can also ask any entity that bills you monthly to report your payment information to the credit bureaus. This includes your mortgage lender, phone company, cell phone provider, or any other company that reports payments to the credit bureaus. The credit bureaus will accept virtually any information that is reported to them. 

Report Rent Payments To Improve Your Credit History

If your rent payments don’t show up on your credit history, ask your landlord if they will report your payments to the credit bureaus. In most cases, they will be willing to do this, especially if you have a history of paying your rent on time every month. You can also find software programs similar to Experian Boost that will report your rent payments. This will give you a strong history of timely payments and will help build your credit history. Your rent reporting history may ultimately count for a lot over time. 

Become an Authorized User

You don’t need to have a credit card account in your name to benefit from its activity. Ask a parent, family member, or friend to add you as an authorized user on their account. Even if you aren’t given a card and don’t make charges, the card activity will be reported on your credit file. But, be cautious with this strategy. If the account owner maxes out their limit or doesn’t make timely payments, this negative activity could end up impacting your credit history for the worse.

Pay Down Existing Debts To Improve Your Credit Utilization Ratio

The credit bureaus like to see you use a small portion of your available credit each month. By dividing the amount of credit that you’re using by the total credit available to you, you’ll calculate your credit utilization ratio. This makes sup 30% of your FICO credit score. Having a credit utilization ratio that’s less than 30% can help increase your credit score (assuming that you pay the balance off in full each month). A ratio of 10% or less is ideal.

So, if you have credit lines totaling $8,000 per month, you’d want to spend no more than $2,400 to keep your credit utilization ratio at or below 30%. Paying your balances in full each month will help you avoid hefty interest charges and keep your ratio low. 

Make All Monthly Payments On Time, Every Time

Your payment history constitutes 35% of your credit score, so make sure that you are able to make all of your debt payments on time, every time. Even one late payment can drag your score down substantially, so be sure to use tools such as automatic bill payment to ensure that you’re never late with your payments. Although creditors typically won’t report a late payment until it’s at least 30 days past due, being even one day late with your payment could trigger late fees and higher interest rates from the creditor. 

Take Out a Credit-Builder Loan

With a traditional loan, a lender gives a borrower loan funds upfront.  With a credit builder loan, a borrower gives the creditor cash upfront equal to the amount of credit being extended. The lender deposits the funds—usually $300 to $1,000—and the borrower repays the loan over the next six months to two years. This option generally affords borrowers lower minimum payments than they would make on traditional loans because the lender already has the full amount to cover the loan in their pocket. The interest rate is also usually not as high as for a personal loan, because there is security backing the loan.

There is no risk to lenders for this type of loan, because they already have the money. If you happen to default on the loan, the creditor will simply keep some or all of the cash that you gave them to cover their investment. Smaller banks and credit unions are usually more willing to make this type of loan than larger banks because there is no credit risk involved. But those who can get this type of credit will be wise to use it responsibly, making at least the minimum payment each month.

If you take out a credit builder loan and you make the required payments each month during this time, your credit score will reflect this positive history of timely payments. During the repayment period, you will not have access to the principal balance of the loan because the lender will use this amount as security for the loan. Once you have paid off the loan, you get the additional benefit of having the secured funds returned to you, so you can look at this type of loan as a kind of secured savings account. 

If You Have a Savings Account, Consider a Passbook Loan

This option is similar to a credit-builder loan. If you have money in a savings account at your local bank, you can use the money in your account as collateral on a passbook loan. The bank will hold or freeze the funds, and allow you to regain access to them as you pay off the loan or you pay it off in full. Your bank or savings account company will usually be willing to lend you 90%-100% of your savings balance. Interest rates for passbook loans are usually fairly low because there is no risk to the lender. 

Credit builder and passbook loans can improve your credit score if you are faithfully able to pay your account on time every month. The credit bureaus love to see a consumer pay off their revolving debts every month without fail, so this approach can have an especially strong impact on your overall credit score. 

Consider Getting a Personal Loan

A personal loan is a more traditional form of loan than a passbook loan or credit-builder loan. With a personal loan, a lender gives you the funds upfront and you repay the loan over time with interest. Since the lender takes on more risk, the interest rate on the loan will be higher than it would be on a credit builder or passbook account. Consider applying for one of these loans at a credit union because the rates will typically be slightly lower than what you’ll find at a bank. 

Before taking out a new loan, be sure that you’re able to afford the monthly loan payment. If you can’t make this payment every month, you’ll harm your credit instead of helping it. This is one of the most expensive types of loans that you can take out. Therefore, you probably shouldn’t take one out just to build your credit. But, if you are already thinking about applying for a personal loan for another reason, paying it off with timely payments each month can help your credit score. 

Make Use of Student Loans

Federal student loan payments are always reported to the credit bureaus, so be sure to stay on top of these loan payments. If you find yourself falling behind in your payments, consider speaking to your lender about modifying the terms of your loan or consolidating your private loans to make repayment more manageable. Making timely payments and staying on top of this type of loan will help your credit score in the long run. 

Get a Secured Credit Card

Unlike a traditional “unsecured” credit card, a secured credit card is a type of secured loan. You can obtain this line of credit by providing a cash security deposit before the card is issued to you. This amount is usually a minimum of $200-$300. The deposit will likely be equal to your credit limit. The lender assumes minimal risk because they have this security deposit already, so they will be willing to extend you a secured credit card in most cases, even if you have bad credit.

A secured credit card is not a prepaid credit card. You will use a secured card just like you’d use an unsecured credit card. You’ll have a monthly payment due against any purchases you make and interest will accrue on any unpaid balance. You will need to make all of the interest and principal payments on time in order to improve your credit score. You may also have to pay  annual or monthly fees. Because interest rates for secured cards tend to be high, try not to max your card out. It is designed to allow you to pay it off monthly and thus rebuild your credit score. 

Consider a Car Loan

Taking out a car loan is not cost-effective just for the sake of building credit because the interest rates on these lines of credit tend to be high. But, if you need to replace your current vehicle, taking out an auto loan can be a good way to build your credit. You will probably be able to get financing from a dealership as long as your weekly or monthly income is above a certain amount. As with the other option on this list, making your monthly car payment on time every month can help you to rebuild your credit.

Above All, Build Credit Wisely

There are numerous ways to build a solid credit history without having a credit card. Some of the above strategies may not work for you. Look at your financial situation and goals to determine which methods are best for you. Many financial institutions are willing to give you a second chance. It will take time, patience, and discipline to build or rebuild your credit, but it can be done, as long as you stay with it. 

If you need help crafting an effective debt management strategy, consider scheduling a free consultation with an accredited, nonprofit credit counseling agency. A free credit counseling consultation session will allow a licensed credit counselor to evaluate your financial situation and provide you with personalized feedback on how to best go about rebuilding your credit uniquely. 

Let’s Summarize...

Having a good credit score is one of the bedrocks of personal finance. If you need to rebuild your credit score, there are several things that you can do other than using a credit card. You can begin by reporting your monthly bill obligations to the major credit bureaus. Then, you can explore taking out new lines of credit that work well for those seeking to rebuild their credit histories. Also, consider consulting with a qualified consumer credit counselor for more information on how you can regain good credit without using an unsecured credit card. There are many options available to you. It is up to you to choose which ones make the most sense for your unique situation.



Written By:

Mark P. Cussen, CFP® , CMFC

LinkedIn

Mark has over 25 years of experience in the financial industry, and has worked with investments, insurance and mortgages as well as income tax preparation and comprehensive financial planning. His writing work includes insurance and securities training manuals and educational art... read more about Mark P. Cussen, CFP® , CMFC

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