Build Credit Without Credit Cards

It is important to have a good credit rating for many reasons. Good credit enables you to request more credit in the form of credit cards, personal loans, car loans, and mortgages. It also can result in lower interest rates for future borrowing. Finally, your credit rating is often verified as part of a background check when you apply for employment. But what if you don't have a credit card? Fortunately, there are many ways you can build credit without one.

Steps

Establishing a History of Credit Inquiries and Payments

1. Apply to rent an apartment. When companies check your credit rating, it helps you to build credit. These inquiries show that there is interest in offering you credit. If you apply to rent an apartment under your own name, the rental company will most likely make an inquiry to the credit bureaus.
   • Renting an apartment involves the risk that you might not pay or might damage the property. It also involves an obligation to pay on a regular basis, just like a credit card.
   • The company may also report whether you are paying each month. Those payments may show up on your credit history, helping you to build credit.
   • Rental companies and property managers do not have an obligation to report payments. Some may do so as part of their standard practices. Even if though don't they may be willing to if you ask them to do so. There is a cost for them to report, but also a benefit. When more people report, they can better evaluate future tenants’ applications.
2. Get added to an existing rental agreement. If you live with other people and can't or don't want to move into your own apartment, make sure your name appears on the rental agreement.
   • Renting a room from a friend or sharing an apartment will not help you build credit if your name is not on the lease.
   • Contact the property manager or landlord and ask them to add your name.
3. Request that companies report your monthly payments. Everyone has recurring monthly bills. These include phone, cable, power, water, trash, and other such utilities. Your payment history for these bills can help to build your credit.
   • These companies rarely report your activity, unless you don't pay. But, some may do so if you request it.
   • Call or write to the various companies that you make regular payments to, and ask if this is possible.
   • If you live with other people and split utility bills, it is a good idea to make sure your name is listed on at least one of them.
4. Make your payments on time. Make sure to always pay your bills and pay them on time. Failure to do so may damage your credit.
   • Companies will report any failure to pay your bills, even if you have not asked them to report your payments to credit bureaus. They will also report any payments that are very late.

Using Store Credit and Loans

1. Apply for store credit. Any type of credit or loan you can get will help to build your credit, as long as your name is on the application and you make your payments on time. If you plan to make a major purchase like a new TV or stereo system, consider applying for credit at the store.
   • Stores will often offer financing to those who do not have a credit card or cannot pay cash. This will help build your credit history and credit rating.
   • These types of loans are often expensive, with high fees and high interest rates. This because stores know the people that need these loans either have bad credit or none at all. The increased fees compensate the companies’ increased risk. Still, this can be a good option to build your credit.
   • You can often prepay on store credit with no penalty. This saves on interest payments. If you have the cash for the purchase, you can pay the application fee and then pay off the loan in the first month, or after 6 months. This can save you a lot in interest. Check the small print and ask the about prepayment possibilities and prepayment penalties.
2. Get a car loan. Financing the purchase of a car, either through the dealer or through the bank, is another way to build your credit. If you are considering buying a car, then consider getting a loan.
   • Car dealers are especially motivated to get you the financing you require, since they want to make the sale. They earn the fees for starting the loan.
   • If you do not qualify for the loan on your own, consider using a cosigner. A cosigner is someone else who puts forth their good credit and promise to pay. This can help you get approved for the loan.
3. Get a student loan. If you are in school, they will offer various forms of financing. Students loans are typically easy to apply and qualify for.
   • A student loan will show up on your credit history as soon as it is approved. In the short run this actually lowers your ability to pay ratio. This is because your debt has increased. As soon as you start making payments though, the payment history will help you to build credit.
4. Apply for a personal loan. Applying for a small loan and making the payments on time will help build your credit history and credit rating.
   • You can apply for a personal loan at your bank, sometimes using your savings account as collateral. This is another good reason to have a bank account.
   • The process of applying for any loan will require you to request and fill out a form, like application for a bank account.
   • Enter your personal information. This will include your social security number, contact information, employment history, and driver's license. If you apply for a loan with another person, you'll need their information and signature as well.
   • The bank will conduct a credit and employment check before deciding to give you a loan.

Opening a Bank Account

1. Get an application. Lenders see bank accounts as a sign of financial stability. One of the easiest ways to start establishing credit is to open a checking and/or savings account. Visit a bank branch or go online to get an application.
   • If you go to a bank branch, a banker will be happy to help you through the process of opening an account.
   • Many banks' websites allow you to open an account online. They include detailed instructions and information about account options.
2. Fill out the forms. To open a bank account, you'll need to provide the bank with some information about you, as well as anyone else who will be using the account. You will need the following information:
   • Social Security number
   • Driver's license or state ID card (number, issuing state, and expiration date)
   • Employment information (current and previous, if you've worked less than one year at your current job)
   • Contact information including street address, phone number, and email
   • If you are opening a joint account with another person, you'll need all this information for them as well.
3. Sign and deliver the application. If you filled out a paper application, sign it and bring it to the bank branch you got it from. If you filled out an application online, hit "submit."
   • The bank will probably contact you to verify your identity if you apply online.
4. Make a deposit. Put some money in your new accounts to start building stability.
   • If you don't have another bank account, bring cash or a paycheck to your local bank branch.
   • If you have another account, you can write yourself a check to deposit. You can also make a transfer online using your debit card.

Earning Consistent Income

1. Get a job. An important part of building credit is establishing your ability to make payments. This requires you to have income. Your employer will likely do a credit check and may report your income.
   • Creditors define ability to pay as the ratio of debts to income. For example, if you have a debt to income ratio of 50%, that would mean half of your income is already committed to paying existing debt. It also means you probably have a limited ability to make additional payments, which would hurt your credit rating. This means that the higher your income is, the higher your ability to pay will likely be.
2. Keep a job. Being with a company over a year is another benefit since it shows more stability.
   • Even if you don't love your job, try to stick with it for at least a year before moving on. Regular paychecks show creditors stability.
3. Pay taxes. Working under the table (off the books) will not help you to build credit. These earnings are not reported, so as far as creditors are concerned, they don't count.
   • Creditors must be able to verify the source and amount of your income. If they cannot, they will not know that you have an ability to pay.

Tips

• Pay Monthly Bills on Time, especially utilities like water and electricity. Late payments are often reported to credit bureaus.

Warnings

• Stay away from companies that offer quick fixes to your credit. Many of these are scams. If it sounds too good to be true, it probably is.
• Avoid rent-to-own arrangements. You end up paying two to three times the original amount the item costs, and the lenders usually do not report to all three credit bureaus.

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• Establish Credit
• Avoid Bad Credit
• Maintain Your Credit Rating
• Get Your Credit Report for Free

Sources and Citations

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• Manage Your Credit
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• Get a Credit Limit Increase on a Credit Card

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