Tips for Building Your Credit Without Getting a Credit Card

Credit cards aren’t for everyone, and you don’t need them to have a high credit score. Having credit cards won’t make building your credit easier or faster. In fact, they’re just as likely to get you in financial trouble as they are to help build your credit profile.

In that vein, the following tips will help you build a robust credit portfolio and help you achieve the kind of excellent credit rating you need. More than that, you’ll also learn a few “credit building” strategies you might want to avoid and the reasons why.

Check Your Credit Report

If you’re trying to improve your health, you check with your doctor to green light your exercise plan. If you’re aiming to improve your credit, you need to know your credit score. There are a number of free, legitimate online tools to help you do just that.

Once you have your score and your report you know where you’re starting from. It’s important to go over your report to make sure that any entries are justified and correct. If there are any mistakes on your credit report, you must correct them. Those mistakes could be anything from a clerical error to identity theft.

If you think you can skip this step and everything will be fine, consider that a 2012 FTC study found that 1 in 5 consumers had a correctable error on their credit report. The follow-up study found that higher than 60% of those with errors felt that their scores would be positively and significantly affected by correcting those errors.

Challenge Any Mistakes or Inconsistencies on Your Credit Report

Correcting something on your credit report can take time. Once you have found an error, such as a closed account showing up as active or unknown credit activity, you can move to have it corrected.

  • First, gather any information or documentation supporting your request to correct the error.
  • Second, contact the credit bureau that has logged the error. This may mean contacting more than one credit bureau.
  • Third, if the issue is clerical, you may be able to work it out with the data furnisher aka the company that logged the mistake.

Though the process is relatively straightforward, it can take 30 to 45 days for a dispute to reach its conclusion. However, most disputes are solved in 14 days or less.

Have a Plan

Once you know your starting point, you need a plan for where you want to go. What part of your credit report do you need to work on? If you’re starting from zero and just want to improve your score, just about any of the following strategies could be your starting point.

In any case, it’s important to know just how many resources and how much money you’re willing to put toward any credit building plan. It’s also important to remember that, over time, you will need a healthy mix of loan types and credit lenders to raise your score. Plan accordingly.

4 Top Credit-Building Strategies

Ask for Your Utility and Recurring Bill Payments to be Reported

Payment history can make up as much as 30% of your credit score. By asking your utility companies to report your payments, you can set up a stable payment history in a short amount of time.

Make Sure Your Rent or Mortgage Payments are Reported

Will this affect your credit? Yes and no. While rental payments may not change your score directly, they may raise your chances of securing a better loan. Many lenders will look at your living situation and payment history, rental or mortgage, to determine whether your not to approve your loan. It shows that you are capable of making steady payments and helps with proof of income.

To make sure they see these payments, make sure you are listed on the rental agreement of any property you pay rent for, even if it’s just a room.

Take Out a Credit-Building Loan

Credit-Builder Loans were created for the exact purpose of building credit without access to other types of loans or accounts. Once your application has been approved, and nearly every application is if you have significant proof of income, you will start making payments. Those payments are sent to a special type of “savings” account. Once you have made all of the agreed-upon payments, the money in that account is released to you.

Utilize a Short-Term Loan or Installment Loan

You can get a credit-building short-term loan at Check Into Cash as well as a traditional bank. These types of loans are meant to be paid back in a short period of time, as little as two weeks and as long as six months. A short-term loan, if all the payments are made on time, will help build up your payment history and add diversity to your credit profile.

Less Effective and Risky Credit-Building Methods:

  • Student Loans – Students can receive a small credit boost from student loans if handled appropriately. However, taking on a student loan just to build credit is usually a bad idea. There are much easier ways.
  • Rent-to-Own – Rent to Own Companies rarely report your payment history to the credit bureaus. When they do, it may not be consistent, even if you ask.
  • Authorized User Status – By becoming an authorized user on someone else’s credit card, you link their score to yours. While this may be fine if they are responsible now, you never know when they’ll get in a tight spot and need to use that credit. This, ultimately, drops your score in addition to theirs.
  • Taking on Too Much at Once – If you are just now building your credit, it may be hard to get into a tight spot. However, it’s important to stick to your plan and only take on one, maybe two, credit building projects at a time.