When you think of ways to build credit, credit cards are likely one of the first things that come to mind. After all, the average American has four cards, making them one of the most popular ways that people establish and improve their credit score.
Credit newbies often start out with a secured credit card, but plastic isn't the only way to begin. You may be able to get credit for rent and utility payments that you're already making, or you might consider opening a loan designed just for credit builders.
Each option has pros and cons, but if you want to avoid the potentially high interest rates of credit cards, there are several different ways to begin that don't involve getting a card in your name.
Here are some ways you can get started establishing credit.
How to build credit without a credit card
Get credit for eligible bills with Experian Boost™
*Experian Boost™ is a free feature that lets you add your on-time phone, internet, cable, utility (gas, electricity, water) and streaming payments like Netflix®, HBO™, Hulu™ and Disney+™ to your Experian credit report. According to its website, average users receiving a boost reported a 13-point increase in their FICO® Score.
Learn more about how Experian Boost can help raise your credit score for free.
Take out a credit builder loan
A credit builder loan is an installment loan with fixed monthly payments, similar to a personal loan, auto loan and mortgage. But unlike a typical loan that grants you access to cash upfront, your lender deposits the amount of the credit builder loan into a savings or CD account that you can’t access until your loan is paid in full.
On-time payments you make toward your credit builder loan are reported to the credit bureaus and can help you establish a credit score. Credit builder loans aren’t our top choice for building credit since you’re unable to access the money from your loan until it’s repaid.
Pay installment loans on time
You may already have at least one type of installment loan unknowingly, whether it's a student loan, personal loan, auto loan or mortgage. And if you don't already have one of these loans in your name, they are common for people to get in the early stages of adulthood, sometimes even earlier.
While federal student loans are relatively easy to open without a credit score, you may need a cosigner with a more established score, like a parent or family member, to open an auto loan.
These installment loans all factor into your credit score, so it’s important to consistently make on-time payments. You can establish a good credit score when you pay your loan(s) on time and in full every month.
Get credit for your rent
If you’re a renter with a history of positive payments, you may want to use a service like Rental Kharma or Rent Reporters that reports your credit information to the credit bureaus. These services typically require verification with your landlord and charge a registration and monthly fee. Rental Kharma has a one-time $50 account setup fee and $8.95 monthly fee, while Rent Reporters charges a one-time $94.95, then a $9.95 monthly fee.
Before you sign up for a service, check with your landlord to see if they already report your payments to the credit bureaus. This can help you save money, while potentially raising your credit score.
Bottom line
Once you've had at least one account open and on your credit report for six months, you'll establish a FICO Score, making your consumer behavior visible to potential lenders. And the longer you maintain a positive payment history and manage your credit accounts responsibly, the better your credit score will be. Good and excellent credit scores are key to receiving the best rates and terms on new financial products and can save you money in the long run.
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*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost™.
