How to Build Credit Without a Credit Card

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Many people mistakenly believe that a credit card is the only way to build their credit. But this is not true. So if you are wondering how to build credit without a credit card, we have some recommendations you can follow. In fact, various installment loans can help you build your credit. You can even make your utility bills work for you, and we’ll show you how.

Key Takeaways
You can obtain a credit score without having a credit card.
Getting a credit builder loan, student loan, P2P loan, or a secured credit card can help you establish a credit history in just six months.
Paying your bill on time every month is still the most critical factor in developing a good credit score.
Some installment loans are available for consumers with bad or fair credit.

10 Ways to Build Credit Without a Credit Card

Building your credit without a credit card is possible. Two of the best ways to do this is through installment loans and utility bills. But we have a few other tips, too, that can help you build your credit in multiple ways, all at the same time.

1. Take out an installment loan

If you don’t want to get a credit card, an installment loan is your next best strategy to help you build your credit. Installment loans are typically personal loans or auto loans that you pay back in even monthly amounts to pay down your principal balance and interest. A great example is a personal loan for poor credit. Some lenders will offer loans for people just starting out or who haven’t quite built up their credit scores. Paying your loan on time each month can help you improve your score.

Pros	Cons
Ability to finance big purchases Payment amount typically stays the same throughout loan term Usually possible to save interest charges by paying off the loan early	Loan fees can be high - read the fine print to understand any origination fees, late payment fees, or early payoff penalties Credit can be damaged if you miss payments or make them late You may end up borrowing more money than you need - be cautious when taking out an installment loan

Ideal for: Those who want to build their credit but do not want a credit card.
Ease of Implementation: Medium. Apply for the loan, sign your loan agreement, and fulfill your monthly loan obligations throughout the loan.
Timeframe for results: With good payment history, you may see your credit score start to improve within two or three months. If you got a loan to help you build credit from scratch, allow at least six months to see your first credit score.
Cost: Be on the lookout for late payment fees, origination fees, and early payoff penalties. Also, ensure you understand the interest rate on your loan and how that will impact the amount you pay back over time.
Risk: Medium. Installment loans require a responsible lender. Do not take out an installment loan if you are unable to meet the minimum monthly obligations.
Effectiveness: High. Installment loans are a great way to build or improve your credit, provided you are able to pay your bill on time each month.
Sustainability: Most installment loans are two to seven years.
Finimpact score: 4

2. Piggy-back on someone else’s good credit by becoming an authorized user on their account

If you are unable to get a credit card of your own because you don’t have established credit yet, or you are not ready to manage the responsibility on your own, you may be able to piggy-back on a family member or friend. Capitalizing on their responsible behavior is a great way to build your credit. If you have someone you trust, ask them to add you as an authorized user on their credit card account.

Pros	Cons
Great way to establish a credit history Allows you to learn to manage your credit You don’t have to get approved for your own credit card Boosts any rewards or perks currently associated with the card There is usually no fee associated with adding yourself to a card Low effort You don’t need to provide proof of income Allows you to establish credit with no credit history	Assumes that the primary cardholder is responsible for their payment history and utilization The primary cardholder will need to take full responsibility Credit mishaps such as a missed payment or failure to pay the balance due can hurt your credit score, and the cardholder’s too You won’t earn your own rewards or perks for using the card

Ideal for: Those not ready to apply for a credit card on your own or are unable to provide proof of income
Ease of Implementation: Easy. Have your friend or family member call their credit card bank to discuss options.
Timeframe for results: Six to 12 months for these activities to start driving your credit score upwards.
Cost: You will be responsible for paying for your share of purchases made on the card and for fulfilling your portion of the minimum monthly payment.
Risk: Low, provided you work with a trusted and financially-responsible family member or friend.
Sustainability: High, especially if you can trust them to pay their bill on time and keep their utilization under 30%.
FinImpact Score: 4

3. Make your utility payments count

Many people don’t realize that some of those monthly expenses can help you build your credit. For example, you may pay for your mobile device, various streaming services, water or electricity bills, etc. Programs like Experian Boost and UltraFico let you get credit for paying monthly utility, cell phone, and streaming service bills on time. You can even get credit for streaming payments on Disney+, HBO, Hulu, Netflix, and Starz.

Pros	Cons
Experian Boost and UltraFico are free Years of on-time payments could help you increase your score. You may see an increase in your FICO score almost instantly Even if it doesn't help you, it won't hurt you The tools can give you extra credit history if you haven't had enough to be assigned a score.	Your credit score may not improve as some payments are ineligible, and not all scores are affected by Experian Boost Not all creditors recognize UltraFico You won't see a difference in your TransUnion or Equifax scores (Experian Boost only works with your Experian score). You have to share personal data to create your account and search for qualifying payments

Ideal for: Those making on-time cell phone, utility, and/or service payments for several months to several years.
Ease of Implementation: Easy. It only takes about five minus to sign up for Experian Boost or UltraFico.
Timeframe for results: You may see an instant increase in your FICO score from Experian.
Cost: Signing up for Experian Boost and UltraFico is free.
Risk: Low.
Sustainability: Easy - once you’re signed up, you can set it and forget it unless you sign on with a new provider or carrier
FinImpact Score: 3

4. Apply for an auto loan to finance a used car

An auto loan is a type of installment loan used specifically for the purchase or refinance of an automobile. When applying for an auto loan, pay attention to the loan costs, such as the interest rate, late fees, early payoff penalties, and other unique loan terms. Also, find out if you will be required to pay a downpayment. A downpayment can help lower the amount you pay each month and can save you interest over time.

Pros	Cons
You don’t have to pay the full amount of the car up front Auto loans help you build your credit, provided you make your payments on time each month You have choices in how you borrow - you can finance or lease your vehicle	One more monthly payment added to your financial obligations Auto loan interest rates are typically higher than for mortgages, student loans, and other types of installment loans Vehicles depreciate quickly (consider a used or new-to-you vehicle that has already depreciated before you buy)

Ideal for: Those who want to buy a new or used card
Ease of Implementation: Medium. You will need money for a potential downpayment, and it takes time to shop for the right car.
Timeframe for results: You may see an increase in your credit score in as little as two or three months.
Cost: Be on the lookout for downpayment requirements, the amount of interest you will pay over time, early payoff penalties, etc.
Risk: Medium.
Sustainability: Car loans typically range from 24 to 60 months, but 72- and 84-month terms are becoming more common.
FinImpact Score: 4

5. Take out a student loan to pay for your continuing education costs

If you are taking college courses, a student loan can help ease the financial burden while your income is hindered due to your course load. And a student loan is a great way to build credit, especially if you don’t have a credit card or have never taken out an account that can help make you eligible for a credit score.

Pros	Cons
Accessible to college students with no or limited credit histories Lower interest rates than other financing options Can help you afford a college education (which looks good to prospective employers) Most federal student loans don't require a credit check when you apply	Default on your student loan can have serious consequences A student loan may not cover all of your expenses associated with your schooling Student loan repayments begin after you graduate and can be challenging for those not yet working in their field

Ideal for: Those who want to pursue a college education.
Ease of Implementation: Medium. To qualify for a student or government loan, you or your parents must complete a FAFSA each year.
Timeframe for results: You will see an initial score in about six months.
Cost: You do not need to repay your student loans while you are in school.
Risk: Medium. Suppose you don't make student loan payments or develop a habit of late payments. In that case, your student loan may eventually go into default
Sustainability: Paying off student loans can take anywhere from 10 to 30 years.
FinImpact Score: 2

6. Try a peer-to-peer loan

Peer-to-peer (P2P) loans are not what you might think. While the name implies you are borrowing from someone you know, an actual P2P loan is made available through online platforms that pair you, the potential borrower, with an investor willing to issue you a loan. One of the biggest benefits of a P2P loan is that you can often get a lower interest rate than you could with a credit union or bank.

Pros	Cons
Higher returns to the investors More accessible source of funding for borrowers Lower interest rates than traditional installment loans Peer-to-peer lenders report payment information to credit bureaus, just as the credit bureaus do	Risky for the lender, especially if you have no credit history No insurance/government protection Some states and jurisdictions do not allow P2P lending

Ideal for: Those who are not qualified for traditional forms of financing or who need funds quickly.
Ease of Implementation: Medium. To get a peer-to-peer loan, borrowers follow a nearly identical process as an online loan. However, you may need to wait a while for funding as the process can take a few days to a few weeks
Timeframe for results: You will see an initial score in about six months.
Cost: Although you may receive a low-interest rate from a peer-to-peer lender, most P2P loans charge origination fees and early payback penalties.
Risk: Medium. peer-to-peer lenders are less likely to tolerate late payments and may send your defaulted loan to a collection agency even if you miss only one payment. If your payments are late, a P2P lender may raise interest rates or add fees
Sustainability: Loans are typically three-year or five-year terms.
FinImpact Score: 2

7. Apply for a credit builder loan

If you can’t get approved for a traditional loan, a credit builder loan might be a more effective way for you to build your credit from scratch. These loans are for a small amount, usually under $5,000, with a short repayment period of six to 24 months. Essentially, with this type of loan, you borrow money from yourself. The money you borrow is deposited in an account while you make payments. You get your money back after you have successfully fulfilled your loan obligations.

Paying off a credit builder loan can positively impact your credit score by about 35%, provided you make your payments on time.

Pros	Cons
Qualification requirements are less stringent Paying your bill on time helps you build your credit score See a 60-point increase in your FICO score after the loan is paid off After your loan is paid off, you can withdraw the funds you deposited to secure the loan	If you have a history of bounced checks, you might not be able to qualify Late payments can lead to interest charges Late payments may also harm your credit score Not a good option if you have existing debt

Ideal for: Those with no credit, poor credit, or those trying to build or improve their credit history.
Ease of Implementation: Easy. It doesn’t take all that long to apply for a credit-builder loan. Once you have your loan, ensure you pay on time every month.
Timeframe for results: You can see your score start to improve, even if just a little bit, as soon as 30 to 45 days after the credit bureau reports on your payment activity.
Cost: You will be responsible for paying the upfront deposit to secure your credit builder loan.
Risk: Low since you borrow approximately $300 to $1,000 from yourself through a creditor.
Sustainability: High. Paying your bills on time is necessary to help your score.
FinImpact Score: 3

8. Build a healthy savings account

A savings account won’t help you build your credit score. However, building a savings account in conjunction with one of the other recommendations here can help you build your score and establish good financial behaviors. Consider the 50/20/30 rule for your finances; Divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings. Now, set a monthly goal to contribute 20% of your net income to your savings account.

Pros	Cons
Less likely to make late bill payments Low startup requirement Better prepared for emergencies, making you less likely to apply for new loans You could earn interest on your balance Easy to open and access FDIC insurance and security	You may have a minimum balance requirement Low-interest rate compared to money market accounts or certificates of deposits (CD) Easy access to funds could be tempting Savings account interest rates are variable Savings accounts have federal limits when withdrawing funds, which is six times per month

Ideal for: People who need to save money for the short or long term and aren't as concerned about getting the best interest rate.
Ease of Implementation: Easy. Be prepared with your driver's license, Social Security number, date of birth, and contact information.
Timeframe for results: Immediate. Your savings account will start to grow as soon as you deposit funds.
Cost: Many savings accounts have a fee to open the account. This fee is usually around $25.
Risk: Low since you are saving your own money.
Sustainability: High, especially if you can live by the 50/20/30 rule.
FinImpact Score: 1

9. Learn how your credit score is calculated

Part of building your credit is understanding how your credit score is calculated in the first place. FICO credit scores are calculated using the following criteria:

Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
Credit mix: 10%
New credit: 10%

And your VantageScore utilizes a very similar approach.

Payment history: 40%
Depth of credit: 21%
Credit utilization: 20%
Balances: 11%
Recent credit: 5%
Available credit: 3%

Credit bureaus need to see activity to generate a credit score, which is why it takes six months for you to see that initial score. But while that six months is underway, borrowers need to ensure they are making smart decisions. There is no automatic credit score that borrowers are assigned for the first time. That initial score looks at your payment activity, how many times you have applied for new credit, and all those listed above. So now is a great time to focus on all those factors that affect your credit score.

Pros	Cons
Improves your financial literacy Sets you up for success for future financial decisions Helps you understand what to expect when you see your first credit score	None

Ideal for: Anyone who wants to take on credit and develop a credit score.
Ease of Implementation: Easy, especially if you learn how your credit score is calculated from the get-go.
Timeframe for results: Immediate. Understanding how your credit score is calculated is finance fundamental.
Cost: None!
Risk: Low.
Sustainability: High, as once you know the game's rules, you can apply it to all future financial decisions.
FinImpact Score: 2

10. Once you have a credit score, check it often

Keeping an eye on your credit score is almost as important as monitoring your credit report each year. But, regarding your credit score, you may be able to access it as often as once a month or more. Many banks and creditors now offer free access to your credit score as one of their perks. So, get in the habit of checking periodically to see how your score is trending.

Pros	Cons
Keep track of important changes in your credit profile See how your financial behaviors impact your score	None - checking your credit score through a free service doesn’t hurt your credit

Ideal for all borrowers. Checking your credit score periodically helps you ensure lenders analyze your borrowing behavior accurately.
Ease of Implementation: High. Many banks and creditors offer free access to your credit score. You can also sign up for a credit monitoring service through one of the bureaus, Experian, Equifax, or TransUnion.
Timeframe for results: Your score is not penalized for checking it regularly. Remember that your credit score updates every 30 to 45 days, so it might be a few weeks before you see a change.
Cost: Free. You can access your credit report annually via annualcreditreport.com, which provides access to your score. You may also access your score for free through your bank or one of the previously mentioned monitoring services.
Risk: Low. Your credit will not be negatively impacted if you check your credit score or report.
Sustainability: Checking your credit score is a habit that all borrowers should get into.
FinImpact Score: 3

How Long Does it Take to Build Credit With a Credit Card?

It generally takes about six months to generate your first credit score. However, the clock doesn’t start ticking until you have opened a credit card account or taken on some other form of credit. The bureaus will be looking to see how well you manage your monthly payments and whether you are keeping your credit utilization at 30% or below. As we shared earlier when we explained the factors that go into your credit score, payment history, and credit utilization combined represent 65% of your score.

The impacts of a credit card in those first two months

Applying for a credit card will initially ding your credit score by about five points. This is the result of the hard credit inquiry that creditors undertake when trying to determine your creditworthiness. And this ding will sit on your credit for up to two years. Your new credit may also experience a hit, especially if you have recently applied for multiple credit cards. But, if this is your first credit card or you haven’t applied for a card in a while, your new credit card may help your score.

The impacts of your credit card over time

As soon as you get it, it isn’t a bad idea to make a small purchase or two. Then, pay your balance in full or the minimum monthly balance each month. This practice helps in two ways:

Let’s you develop a history of on-time payments, which represents 35% of your credit score
It shows that you can balance your utilization (the amount you owe compared to your credit limit), which represents 30% of your credit score

Building credit quickly with a credit card

The best ways to build your credit quickly using a credit card, is to follow these steps.

Make purchases and pay on time, all the time - Payment history is a whopping 35% of your FICO score.
Open a card but don’t use it - this might seem counterintuitive, but it works! Though this method works a bit more slowly than other methods to build credit fast, it helps keep your utilization in line and shows that you are not desperate to use the credit you have.
Become an authorized user on someone else’s credit card - this is a great way to piggyback on someone else’s good financial decisions.
Don’t max out your limit if you decide to use the card - your credit utilization is the ratio of your total balance owed to your total credit limit. Keeping your credit utilization below 30% is generally a good idea.

Challenges Faced by People with no Credit History

Just as making poor credit decisions can get you into trouble, having no credit history can be just as costly. Consider these repercussions commonly faced by those who either don’t yet have or choose not to have a credit history.

Buying a house becomes infinitely harder unless you have enough cash to pay for the house; creditors may not want to offer you a mortgage
You may be required to pay deposits for your utilities, rent, and more.
It will be hard to qualify for credit cards.
Borrowing money will be more expensive because those creditors who might be willing to give you a loan will likely charge a higher interest rate
Even getting a cell phone might be more expensive as the carrier may expect you to pay for the phone in full at the beginning of your contract

Tips for Responsible Credit Use

To quote Stan Lee, with great power comes great responsibility. And this is certainly true when it comes to responsible credit use. Here are some ways to help you learn how to be responsible with your credit so that you can grow your credit score and someday be eligible for a personal loan for good credit.

Understand how your credit score is calculated. Remember that 65% of your score alone is determined by how well you make your minimum monthly payments and manage your credit card utilization.
Have a steady source of income. Though your income is not part of your credit score calculation, creditors will ask you about your income as part of the application process. Creditors don’t like to see someone who jumps from job to job (unless in the same field with a consistent or growing income level) or has an inconsistent income.
Protect your personal information and check your credit report annually via annualcreditreport.com.
Apply the 50/20/30 budgeting rule to your lifestyle. Whether you choose this method or take a different approach, a budget can ensure you don’t bite off more than you can chew.
Always, always, always make your payments on time. Remember that payment history represents 35% of your credit score. And when you can pay more than the minimum due, this will help you save money on interest over time.
Keep that credit utilization under 30%. For example, if your secured credit card credit limit is $1,000 and you have a $300 balance, your debt-to-credit ratio is 30%.
Monitor your credit score each month via one of the credit bureaus; Experian, Equifax, or TransUnion.
Sign up for Experian Boost. This is a great way to get credit for those monthly expenses that aren’t typically reported to the credit bureaus.

How to Leverage Different Types of Credit to Maximize Financial Success

Traditional credit cards are one form of credit affecting your credit score. This said, credit such as trade credit, bank credit, revolving credit, etc., can also impact your score. Here are some terms and phrases that you should be aware of.

Consumer credit

Consumer credit allows consumers to borrow money or incur debt related to the purchases of goods or services and to defer repayment of that money over time. The cost of education is an example of consumer credit.

Trade credit

Trade credit is similar to consumer credit, except it's between a retailer and the supplier who sells them inventory. Promissory notes, trade acceptance, and open accounts are all examples of trade credit. It’s important to note that sellers can report delinquencies on trade credit, which may affect a buyer's credit rating.

Bank credit

Bank credit comprises the total amount of funds financial institutions advance to individuals or businesses. Types of bank credit include car loans, credit cards, mortgages, and business lines of credit.

Revolving credit

Revolving credit lets consumers borrow money up to their maximum credit limit, pay it back over time, and borrow once again as needed. The two most common types of revolving credit are personal lines of credit and credit cards.

Open credit

Open credit, sometimes called open-end credit, is an agreement between a financial lender and borrower that allows the latter to access credit repeatedly up to a specific maximum limit. Credit cards are the most common type of open credit.

Installment credit

Installment credit is when a borrower accepts a loan for a fixed sum of money and agrees to make monthly payments until the loan is paid off. A mortgage, auto loan, or personal loan for excellent credit are examples of installment loans.

What Are the Three Credit Bureaus?

The three credit bureaus are Experian, Equifax, and TransUnion. When a creditor looks at your credit report, they usually look at information from all or one of the bureaus based on their preferences. All three credit bureaus are the same in that your credit report will contain the following information.

Your personal information
A summary of your accounts
Public records such as judgments, tax liens, or bankruptcy
Inquiries on your credit file

Each bureau scores just a bit differently, however. This is why your credit score may vary from bureau to bureau. Equifax, for example, clearly distinguishes between open accounts and closed accounts. This can make it easier for creditors (and borrowers) to distinguish the information and select which accounts you want to examine first.

Experian clearly shows a status detail that indicates when an account is scheduled to fall off your credit report. This can make it easier for those who have experienced bankruptcy to know when it fell off their report. And TransUnion has the most thorough and robust employment section. Though this information is not included in your credit score, it makes it easier for potential employers to see your job stability.

How to Monitor Your Credit

It is recommended that borrowers check their credit score every one or two months and their credit report at least once per year. Many banks and credit card companies offer free access to your credit score. However, if you don’t yet have a credit card or your bank doesn’t offer this service, you can access your credit score for free via one of the credit monitoring services available through the bureaus, Experian, Equifax, or TransUnion.

Even though your score is only updated every 30 to 45 days, checking your score periodically can help you see if something has gone wrong. A sudden drop in your credit score that you did not anticipate might indicate you missed a payment or were the victim of identity fraud. If you see a major change to your credit score, especially one where your score is headed south, it is time to check your credit report and scour it for errors. You can access your credit report for free once per year at annualcreditreport.com.

Final Word

As you can see, building credit without a credit card is possible. The best ways to do this are by being added to someone else’s card, taking out a personal loan for fair credit, or following one of the other recommendations in this article. However, paying your bills on time each month is the most important thing you can do with whatever credit you take on to build, if not improve, that credit score.