Not all students will be ready for a credit card, but responsible students can start building a credit history early. (Photo: Alliance/Shutterstock)

5 Ways to Build Your Credit Without a Credit Card

By Meg C. Hall

You may have heard that getting a credit card is the best way to build your credit score, but this approach isn’t right for everyone.

“Using a credit card responsibly can be an easy way to build credit, but not as easy as many would think,” said Kurt Brucker, private CFO at oXYGen Financial and advisor to many millennials seeking personal finance and career guidance. “If you do not fully understand how they work, it can put you in a deeper hole than neglecting to build your credit in the first place.”

If you want to establish good credit but are wary of credit cards, don’t worry! There are lots of other ways to build your credit, explained Brucker, such as secured credit cards, rent reporting services, credit builder loans and more.

“These approaches can be more gradual, but being able to show consistent payment history will help your credit,” he said.

Student loans

Paying back student loans can be frustrating and painful, but they are also an excellent way to build credit, said Brucker — especially if you have little or no credit history.

Regardless if you have taken out federal or private student loans, you can demonstrate responsibility to credit bureaus by making timely payments on your student loan debt.

“Making your payments on time is the biggest driver of your score. Student loan payments, which tend to be small, is one of the easiest ways to build credit,” he said.

If you’re a current student, jumpstart your credit history by making payments while you’re still in school and during your grace period.

Secured credit cards

If you need a credit card, but fear the temptation of spending more money than you have, getting a secured credit card is a much safer bet.

“A secured credit card is just like a regular credit card except that you have to put down a security deposit in the amount that you will be able to charge,” Brucker explained. If your deposit was $200, for instance, you would have a $200 credit limit on the card.

Use the card and pay off your balance each month to give your credit score a boost, he said. “Once this has gone on for a year, you can generally get approved for an unsecured card which doesn’t have this requirement.”

Credit builder loans

Like secured credit cards, certain loans are specifically designed to help individuals establish their credit history.

“Credit builder loans are another great option because they give you an opportunity to build credit when most lenders won’t take a chance on you,” Brucker said.

Unlike other types of loans, you won’t receive the funds from a credit builder loan immediately upon approval. Instead, the money is placed in a savings or CD account until the loan is paid in full.

“The reason a lender would enter into this kind of an agreement is because they still hold the funds,” he explained. “Once you pay off the loan, you then receive the funds while building your credit along the way. This can be a great alternative to credit cards as you become responsible with making timely monthly payments.”

Vehicle financing

Car payments are another great way to build credit without a traditional credit card.

“If you are considering buying a car, look at financing as a real option to be able to build your credit,” said Brucker. Even if you have the cash on hand, making on-time installment payments for at least six months will go a long way toward establishing credit or improving a bad credit score.

As with any loan or payment arrangement, Brucker said it’s essential to make sure you don’t outspend your means. His advice: “Put down at least 20 percent, don’t finance for longer than four years, and don’t have the auto costs (payment, insurance, gas, etc.) be more than 10 percent of your net income.”

Rent reporting

If you rent your home, it’s very likely that your lease payments aren’t reported to credit agencies unless you become delinquent. However, there are a number of third-party services, such as RentTrack, RentReporters and Rock the Score, that will report rental payments to credit bureaus for you.

“Be aware that these services have an upfront fee of $25 to $100 and can charge additional fees for retroactive reporting or ongoing service,” Brucker said. “Some of them also require your landlord to be enrolled as well.”

While rent reporting won’t build your score as quickly or dramatically as traditional lines of credit, he said, every little bit counts.

“My best advice is that you should get started today,” said Brucker. “The more quickly you start and make responsible payments the easier it is to establish your credit. Utilizing these simple straightforward options, like secured credit cards or credit builder loans, will give you the keys to establishing the credit you need to build your life.”

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