How Can I Build Credit without a Credit Card?
Building credit can be a tricky process because it takes credit to build credit. Most people struggle to build their credit history without initially using some “starter” credit cards to get the ball rolling. How can you build credit without a credit card? There are a number of ways:
Rent to Own Furniture
Some rent-to-own furniture stores report payments to the credit bureau. Aaron’s, for instance, will start reporting payments after the three or four month same-as-cash period is over. You’ll have to pay more for your furniture to get it this way, but you can build your credit and get something new for the house at the same time. If you pay off your balance right away, you will only get credit for the months you made payments. One or two months isn’t going to do much for your score.
Payday loans are notoriously expensive, but they are one way to get money and build credit at the same time. Most payday loan providers do not care about your credit score. They only want to know if you have the income to support your loan. All you have to do is pay back your loan per their terms. You can find a local payday loan company and see their costs.
If you do contact a payday loan provider, make sure you ask about “installment loans.” These are eligible for monthly payments. If you get a basic payday loan, you may be required to pay it all off by your next pay check. That may not do much for your credit.
Car loans are great options for building credit, and they aren’t always hard to obtain. You may have trouble qualifying for a brand new car without credit. There are several ways to get a car loan with no credit. You could:
- Use a “buy here, pay here” dealer, where the dealership acts as the lender. Note you will have to pay a high interest rate and financing fees with this option.
- Work with a local credit union. They may give you a chance on a car if the price is low or you can come up with a hefty down payment. Visit the National Credit Union Administration’s website to find a credit union near you.
- Work with a lenient lender. Talk to the dealership and see if they have a suggestion.
- Get a cosigner. This person needs to have strong credit because he or she will act as the guarantor on the loan. If you don’t make a payment, your cosigner’s credit suffers.
Secured Credit Cards
We can’t end this post without at least mentioning something you can do with credit cards to build your credit. This option has no risk on your end. Secured credit cards are essentially prepaid debit cards that act like traditional credit cards. Rather than getting a card with a $2,000 credit limit from an issuer like Chase or Citi, you will personally put $2,000 on your card. This becomes your new credit limit, which you can spend just like you would on a normal card. The catch is you have to pay the balance back.
Secured credit cards come with interest rates, annual fees and other expenses you would expect from normal credit cards. When it comes time to cancel the card though, you get all of your original investment back minus whatever you owe. If you do not have any available balance, the company will simply cancel your card and thank you for your business.
The payments you make on a secured credit card will be reported to the credit bureaus, whether they are positive or negative. That means you have to keep up with your account just like you would in any other situation. Secured cards are not as risky as standard credit cards in the sense that you are not going to go into debt. You are spending your own money. If you want to give credit cards a try without making yourself vulnerable, this is a good credit-building opportunity to consider.