Advertiser Disclosure

How Can I Build Credit Without a Credit Card?

Nov. 2, 2016
Credit Score, Personal Finance
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.

The fastest way to build credit is with a credit card. To obtain a traditional, unsecured credit card, you need to have established credit. It’s a bit of a Catch-22 for folks looking to enhance their credit score.

Fortunately, there are alternative methods for building a borrowing history that don’t involve applying for little plastic rectangles. Here are three ways to build credit without a traditional credit card.

1. Credit-builder loans

Often available at credit unions and community banks, credit-builder loans are financial products that exist for the sole purpose of helping members build credit. With a credit-builder loan, you are essentially borrowing money from yourself. The loan poses no risk to the issuer.

You pay the credit union the loan’s amount upfront — either in one lump sum or in monthly installments that the organization places in an interest-bearing savings account. Once the loan is paid in full, you have access to the money. The  borrower might pay anywhere from 0% to 18% in interest depending on the terms of the loan. Payments are reported to credit bureaus. Late and missed payments will have an adverse effect on your credit score, so make sure you keep up.

2. Other loans

Credit-builder loans aren’t the only loans that will help you build credit. Paying back car loans, student loans and mortgages will also show lenders that you are a  responsible spender. If you have existing loans, it is vital you make all payments on time. This is a surefire way to improve your credit score. Refrain from taking out new loans unless you are absolutely certain you will be able to keep up with payments. If you’re having trouble getting approved for a loan, you might try a peer-to-peer option.

3. Obtain a secured card

If you’re reading this article because you’re having difficulty getting approved for a credit card, don’t give up just yet. Almost anyone can get approved for a secured credit card because, like credit-builder loans, they are issued at no risk to the lender.

A secured card is different from a regular card in that you’re required to put down a security deposit that will determine your spending limit. Often, the minimum deposit is a couple hundred dollars, and the more you put down, the higher your limit will be. Again, you’re basically borrowing money from yourself.

Unlike with prepaid debit cards, your payments on a secured card will be reported to the credit bureaus and have a significant impact on your credit score. When you eventually qualify for an unsecured card, you can close your account to have the security deposit refunded. Secured cards aren’t the most alluring financial products, but they are a quick route to better credit if you keep up with your payments and stay well under your spending limit.

This article updated Nov 2, 2016.