Many people believe the only way to build credit is with credit cards. That’s not entirely accurate. There are other options if you prefer not to use credit cards. Below are 7 other options available to establish credit!
7 Ways to Build Credit Without Credit Cards
1. Credit Builder Loan
Credit builder loans are offered by some credit unions and banks to help people build credit. You can borrow $1,000 or less and make payments for 12-24 months. These loans typically have relatively low interest rates.
2. Passbook or CD Loan
This loan uses the balance you already have in a savings account or CD to secure the loan. Having a poor credit score wouldn’t affect your chances of approval here. The financial institution is already holding funds that can be used if necessary to repay your loan.
3. Federal Student Loan
These loans, paid or not, are always reported to the credit Bureaus. You can get them without a credit check. Pay on time and your credit score should benefit. keep in mind that taking on student loan debt to solely build credit is not a great strategy.
4. Personal Loan
Personal loans don’t use collateral. They do typically have slightly higher interest rates in comparison to secure loans. You may get asked to obtain a cosigner. A cosigner would keep the interest rate lower.
5. On-time Rent (Possible)
Some landlords report to the bureaus. This will help you establish a credit history. Most likely it will not affect your score. This will be proof for any one who may view your credit report that you have a history of making on-time payments.
6. Peer lender
For your information, these are not loans from your best friend(s). These loans skip financial institutions. That’s how the name came about. If the peer lender reports to the credit bureaus, paid as agreed, this could help your credit score. Peer lender loans typically have higher interest rates in comparison to other options. Make sure that the lender reports to the credit bureaus.
7. Authorized User Status
You could ask a close friend or family member to make you an authorized user on his/her credit card account. It is not necessary for you to actually possess a card to benefit from this. Make sure you do this with someone who uses relatively little of their available credit and pays on-time. Your credit score should improve under these circumstances.
I was told by a parent that a credit card is a “good” way to establish credit as long as you use it responsibly. She made it sound like plastic was the only option available. I was 18, fresh out of high school, and I didn’t think to check the internet. I trusted my mom and assumed she knew what she was talking about. It was very rare that she ever gave me bad advice. The moral of this post is don’t fall for the “credit cards are the only way to build credit” crap. Just know there are other options available.