How to Build Your Credit Score without Credit Card
Questions on how to build your credit score answered.
Can you have a credit score if you don’t have a credit card? Do you need a credit card to get a credit rating? Can you get a credit report without a credit card? These are some of the questions you may want to ask if you don’t have any credit card yet. The answer is that you can actually build your credit card without having a credit card? How? Well, don’t be in a hurry. I will give you few tips on how you can achieve this. But before I continue, I will like you to get one thing clear. You need credit before you start talking about building your credit score. Also, such credit must be reported to the major credit bureaus. This is where many people are getting it wrong. They already set their mind that the only way to build credit score is to get a credit card. The good news is that, it does not mean that you will not be able to build your credit without a credit card. Below are some of the creative ways of building credit score without necessarily having your own credit card.
Be an authorized user of a credit card: You can ride on the wing of someone with good credit score and good payment history to build your credit score. You will need to approach such person who may be your parent or a close relation of yours whose trust you have earned over time. Your request will be that the person should add you as an authorized user of his credit card. As he continues to use the card responsibly and the reports are being made to the credit bureaus about his prompt payments, this will also impact your credit score too. If you want to go for this option, you should only be an authorized user to a card whose holder always makes prompt payments on his card. Otherwise, it can equally damage the credit score you are trying to build.
Read Also: How to Use a Credit Card Responsibly
Get instalment loan: Another method you can use to build your credit score is to get instalment loan. However, unlike the first option discussed above, instalment loans come at a cost. You will need to pay interest on the loan. But if you have certificate of deposit or even saving account that you can pledge as collateral, the interest rate you will be charged may reduce. Since instalment loans are usually reported to the credit bureaus, timely monthly repayment of the loan will help you build your credit. But if you make late payment or you miss your payment, it will also be reported. This will have damaging effects on your credit.
Get federal student loan: If you are a student and you are eligible for federal student loans, you can take advantage of this to build your credit score. Federal student loan rates are usually lower than that of private student loans. The repayment plans are also more flexible and the come with other privileges. Federal student loans can help you jumpstart your credit building process even when you are still in the school. By the time you graduate when you may likely want to apply for auto loan, this can increase your chance of getting the auto loan. Also, good credit score can help you can get your auto loan and insurance at good rates.
Get peer to peer loan: Besides the traditional way of borrowing, there are several other companies that lend peer to peer loans to people. In most cases, their requirements are not that stringent. This makes it to be more accessible to people. However, the interest rates on peer to peer loans are quite high. Therefore, if you are getting peer to peer loans for the purpose of building your credit score, you should keep the amount of the loan very low. It is not the amount of the loan that matters but how you are able to service the loan effectively by ensuring that you pay both the interest and principal as at when due. You should endeavor to ask if the loan and the repayment will be reported to the credit bureaus. If not, the objective of getting the loan, which is for you to be able to build your credit score, will be defeated.
Get credit builder loan. You can also build your credit score with credit builder loan. This will require that you deposit the amount you want to borrow with the bank where you are getting the loan from. The money you deposit into the bank will serve as collateral. Some banks may pay interest on your deposit. At the same time, you will need to pay interest on the credit builder loan. The interest rate will definitely be higher than the rate of interest you receive on your deposit. However, the interest income will help you offset part of the interest expense you will have to pay on the loan. People apply for credit builder loans not because they actually need the credit. They do this primarily to help them build their credit score. As they continue to pay down the credit, the payment will be reported to the credit rating agencies. If you are getting credit builder loan, timely repayments will help you build your credit score.
Read Also: Using Secured Credit Card to Build Your Credit
Have your utility payment reported: Although FICO may not consider timely payments of your utilities in the criteria used in calculating your credit score, there are other rating agencies that will consider these. For this reason, you can implore your landlord and utility providers to report the payment of your monthly rent, telephone, electricity, gas and cable bills to credit bureaus. You should not totally depend on this option to build your credit score as your landlord or utility providers are not obligated to report your payments to credit bureau agencies. But if they report it, it will be to your advantage. That is why you should not feel hesitate to ask them to help you to do so.
Opt for alternative credit scores. As mentioned, apart from FICO score, there are other credit agencies that provide alternative credit scores that take care of non-credit based payments. Therefore, you can tell your creditors to use this alternative credit scores to assess your credit.