How To Build Credit
Without Credit Cards

Can you build credit without credit cards? The answer is, absolutely! While credit cards are a common tool for building credit, they are not the only option available.

For those who prefer to avoid credit cards or find themselves unable to qualify for them, there are several other ways to establish credit and improve your credit score.

Woman with laptop: can you build credit without credit cards?

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In this article, we will explore some of these alternative methods and provide tips on how to build credit without relying on credit cards.

Whether you are new to credit or simply looking for alternative ways to establish a good credit history, read on.

Extra: First Debit Card to Build Credit and Earn Rewards

Extra is a debit card that helps you improve your credit. It reports your payment history to Experian and Equifax, two major credit bureaus. Extra differs from secured credit cards in that no deposit is required.

To use Extra, you need to create an account and link it to your bank account, after which Extra will issue you a debit card with a spending cap.

When you make a purchase with the card, Extra will pay for it and deduct the cost from your bank account the following business day. At the end of each month, Extra reports your payment history to Experian and Equifax.

One benefit of using Extra is that it can help you establish or strengthen your credit, which may lead to lower interest rates on loans and approval for rewards credit cards. Additionally, you can earn 1% rewards points on your purchases.

Because Extra pays itself off each day, your credit utilization score may improve as your utilization is reset daily and has a better chance of staying below the recommended 30% threshold.

Credit Builder Loans

If you have a limited credit history or a poor credit score, securing approval for a conventional loan can be challenging. Fortunately, a credit builder loan can help address this issue.

When applying for a credit builder loan, the lender will deposit the total amount, usually ranging from $300 to $1,000, into a secure account. Unlike regular loans, the funds are not immediately accessible. Instead, you make fixed monthly payments until the loan is fully repaid, and you receive the loan proceeds (minus applicable fees) at the end of the loan term.

Credit builder loans are an excellent way to establish credit since you make timely payments without spending additional money. All payments are reported to the major credit bureaus, resulting in an enhanced credit score.

Car Loans (Financing or Refinancing)

If you are looking for ways to establish or improve your credit, a car loan is worth considering.

Even though paying cash for a car may be a smart financial move, in terms for credit, it won't contribute to building your profile. By financing a car with a loan, you can establish a record of on-time payments that can positively impact your credit score over time.

When shopping for a car loan, it's essential to find a loan with a low-to-medium Annual Percentage Rate (APR) and monthly payments that fit your budget.

A low APR means that you will pay less in interest over the life of the loan, making it a more affordable option. Additionally, making on-time payments will help you build credit and avoid late fees or damage to your credit report.

Car loans are installment accounts, similar to credit builder loans, and are reported to credit bureaus, such as Experian, TransUnion, and Equifax.

By consistently making on-time payments, you can establish a positive payment history and boost your credit score. It's crucial to make your payments on time every month and avoid missing any payments, as late or missed payments can harm your credit score.

Overall, if you need a car and want to build or improve your credit, a car loan can be a smart financial move. Just be sure to shop around for a loan with a favorable APR and make all payments on time to help improve your creditworthiness over time.

Personal Loans

Personal loans are an excellent financial tool that can help improve your credit score. A personal loan can help you consolidate high-interest debt, pay for unexpected expenses, or fund a significant purchase. It can also help you build credit if you use it responsibly.

A personal loan is an unsecured loan (no collateral or deposit required). Instead, lenders will evaluate your creditworthiness based on your credit score, income, and other factors.

Taking out a personal loan can impact your credit score in several ways. First, applying for a personal loan will result in a hard inquiry on your credit report, which can temporarily lower your credit score.

However, if you're approved for a personal loan and make timely payments, it can help boost your credit score in the following ways:

  • Payment History

    Your payment history is the most critical factor in determining your credit score. Payment history accounts for 35% of your FICO score. Making on-time payments on your personal loan can improve your credit score over time.

  • Credit Mix

    Credit mix refers to the types of credit accounts you have. Having a mix of different credit accounts, such as credit cards, car loans, and personal loans, can help boost your credit score. Personal loans can help diversify your credit mix.

  • Credit Utilization

    Credit utilization is the percentage of your available credit that you're using. High credit utilization can lower your credit score. Personal loans can help lower your credit utilization if you use them to pay off high-interest credit card debt. This lowers your credit utilization and improves your credit score.

Before applying for a personal loan, check your credit score to make sure you're eligible. You can check your credit score for free on several websites, including Credit Karma and Credit Sesame.

When applying for a personal loan, look for competitive interest rates but also make sure you only borrow what you need.

Borrowing more than you need can lead to unnecessary debt and higher interest charges. It can also increase your credit utilization, which lowers your credit score.

Tips to Remember While You Build Credit Without Credit Cards

Of course, building credit without credit cards requires the usual diligence:

  1. Pay your bills on time: Late payments can damage your credit score, so make sure you pay your bills on time every month.

  2. Keep your credit utilization low: Try to use no more than 30% of your available credit at any time.

  3. Maintain a good mix of credit: Having a mix of credit, such as credit cards, loans, and a mortgage, can help boost your credit score.

  4. Monitor your credit report: Check your credit report regularly for errors and signs of fraud.

  5. Limit new credit applications: Applying for too much credit at once can hurt your credit score.

  6. Keep old credit accounts open: The length of your credit history can affect your credit score, so don't close old credit accounts.

By following these guidelines, you will be able to establish and maintain a healthy credit rating.

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