A credit card is how many people build their credit. Unfortunately, not everyone can get approved for one due to poor or no credit history. If you’re in this situation, don’t worry! Other options can help you build your credit score and eventually qualify for a better interest rate on loans when the time comes.
We’ll discuss how to find the best option for your financial situation so that you can boost your credit score in no time at all.
Below, we discuss how to build credit without a credit card—an unsecured card, that is, as a secured credit card often represents many people’s first foray into building credit.
How to Build (or Rebuild) Credit Without a Credit Card—Our Top Pick
How to Build Credit Without a Credit Card
When people think about building credit, they often think first about credit cards. However, this by no means represents the only way to build your credit.
To build credit for yourself, you can make payments on:
- existing debt
- secured card
- co-signed loan
- student loans
All of these payments count toward your credit reports.
You also have other measures you can take. For example, you might consider asking to become an authorized user on a family member’s credit card (though only if they carry excellent credit).
Further, you might apply to take alternate types of payment history into account, such as rent payments or cell phone bills.
Below, we cover how to build credit without a credit card—an unsecured one, that is.
7 Ways to Build Credit Without a Credit Card
1. Secured Credit Card
If you came to this looking how to build credit without a credit card, you likely wouldn’t expect the first suggestion to be a credit card. With that original premise, building credit without a credit card implies without an unsecured credit card.
Consider a secured credit card as a cousin of an unsecured credit card and an excellent way to learn how to build credit without a credit card. A secured credit card is a type of credit card that requires you to put down an upfront cash deposit, usually equaling the amount of your credit limit.
This cash security deposit helps protect the credit card company from recognizing a loss by issuing you a credit card and failing to receive payments.
A secured card typically works best for individuals with no credit or looking to rebuild bad credit.
The cash deposit establishes collateral the credit card issuer may claim in the event of default or failure to make on-time payments. A secured card often represents the first step someone takes to build credit.
One option worth considering is the Step Secured Credit Card, discussed more below.
Step (Best Secured Credit Card for Teens and Young Adults)
The Step Visa Card is a unique “hybrid” secured credit card that’s tailor-made for kids, teens and young adults without credit. It functions just like a Visa credit card, but it offers the safety features of a debit card—and most importantly, it can help build your credit history.
If applying for the credit card as a minor, you’ll need an adult to sponsor the card, such as a parent. The sponsor can opt to have Step report the past two years’ worth of information—transactions, payment history, and more—to the credit bureaus when their sponsored child turns 18. Credit scores are assigned once someone turns 18, and most teens will begin with a score of under 600. But based on a Step survey, 18-year-olds who used Step for at least seven months had an average credit score of 725.
How much of a difference could that better credit make? Step says that an 18-year-old user with a score of 725 could expect these kinds of savings compared to users with lower credit scores:
- Car insurance: $147 per month instead of $250 per month
- Student loan: 6.24% interest rate instead of 10.46%
- Security deposit: 1 month’s rent instead of two months’ rent
Step also provides a seamless experience for teens who “graduate” into young adulthood. When they turn 18, Step allows cardholders to keep their old credit card number and account, doing the legal heavy lifting in the background to get them appointed as the legal owner of their account, and transitioning them to an independent account. Everything—from how they access the app to their account numbers to their investments—stays the same from their perspective, and Step continues reporting credit on the same “credit line,” which allows them to keep building their credit history.
In other ways, Step acts like a debit card.
If you have your own account, you can add money directly to your FDIC-insured Step account. If sponsoring a minor, parents can add money directly into their child’s Step account. A regular Step account allows a child to have both a physical spending card as well as a virtual card in the Step app, while a Parent Managed Account only allows the child to spend via a physical card. Children can use both the virtual and physical cards to spend anywhere Visa is accepted, and they can use the physical card to withdraw money for free at more than 30,000 ATMs.
And adults (and parents) needn’t fear overdrafting—they can’t spend any money they don’t have.
Other features include Savings Goals, where any money saved can generate 5% in annual interest (compounded and paid monthly) with a qualifying direct deposit*; Savings Roundup, where purchases are rounded up to the nearest dollar and the overage is put toward a Savings Goal; an “invest” function that allows users age 13 and older to buy and sell Bitcoin; and opt-in cash or Bitcoin rewards from companies including Hulu, Chick-Fil-A, CVS, and the New York Times.
The Step Card is protected by Visa’s Fraud Protection and Zero Liability guarantee. That means if you or your teen’s card gets lost or stolen, or misplaced and fraudulent charges crop up, you can dispute the charges within a certain time frame to avoid liability for paying.
2. Credit Builder Loan
Credit builder loans and credit cards are very different in how you fund and use them, but both are useful for building credit.
A credit builder loan functions as a tool for people who have low or no credit history. They can use them to begin building up their credit scores by establishing a credit history.
If you build up your score enough, you can qualify for better terms on a credit account, car loan, or other forms of financing.
These loans do not require you to have stellar credit to receive approval, just the income to make payments. They work by depositing money into a bank account and borrowing money from it while making repayments.
You’re essentially taking money out of one pocket and putting it in the other. However, you’re doing so with the understanding it builds credit for you.
A credit builder loan should help establish better credit limits on a future credit card account, earn a better interest rate, or receive better overall terms on credit.
Typically offered by credit unions or other smaller financial institutions like a community bank, these credit builder loan payments should get reported to the credit bureaus. In return, this helps you build your credit—though be sure to confirm this!
3. Authorized User Status
Suppose you become an authorized user on someone else’s credit card account. In that case, the credit card issuer will send a card to the primary cardholder with your name.
The credit card company holds the person who signed up to be the primary account holder responsible for paying charges on their account.
If an authorized user makes purchases on the unsecured card but doesn’t pay toward the balance, they are not responsible for repayment.
Parents wanting to help their children build credit often use this strategy.
Before getting an unsecured card and being added as an authorized user, make sure you and the primary account holder have agreed on whether or not to use the card you receive.
Further, you should determine this ahead of time because any charges that you make will be their legal responsibility, even if you agree to pay them.
Credit card issuers report your balance and payments every month to credit bureaus. So, even if you don’t receive a physical card, it affects your credit in the same way.
If you don’t meet the requirements for having credit cards on your own, having an authorized user status on a cardholder’s account might be beneficial to building positive “payment history,” a credit scoring component.
It may cut the time it takes to get a FICO score—one of the most common credit-scoring models—down to less if you don’t already have a card used by credit bureaus to mark your creditworthiness. Further, it might also get credit cards in your hands sooner than later.
4. Alternate Payment History Appearing in Your Credit Report
A person’s credit history relies on traditional forms of debt repayment and credit accounts factoring into their score:
- revolving loans
- installment loans
- student loan payments
However, the major credit bureaus also offer credit products to incorporate more items into your score. Products like Experian Boost account for actions in your overall credit profile like:
- utility payments
- rent payments
- cell phone payments
By paying rent, utility bills, and rent, you also demonstrate your ability to manage other liabilities. Taken together, these added items can create a good credit score worth using when applying for a loan or credit card from a bank or credit union.
If you need a short-term boost to your score, you might consider using Experian Boost to add more credit accounts to your credit profile when being evaluated through a credit check.
Related: Best Credit Cards for Teenagers
5. Co-Signers on Credit Products
If you can’t become an authorized user on a credit card, you might consider becoming a co-signer on one. Generally harder to find, these types of cards carry a legal responsibility for both account owners.
Authorized users don’t need to face the music if they can’t pay their credit card bill, as the primary cardholder remains liable to the lender.
Having a co-signer credit card works similar to carrying a joint brokerage account or bank account—you both have access to the funds. However, they differ because joint accounts list both owners as equals, meaning they share the account title and legal responsibility.
Co-signer cards usually only list the primary cardholder as the account owner. Both face legal responsibility for making payments, and the debt appears on both users’ credit reports.
6. Repaying Existing Loans
An essential part of one’s credit score is a history of on-time payments. If you are timely in paying your student loans, this will help improve your credit.
As the amount of money left on your student loans gets lower, your score improves, all else being equal.
Payments on these student loans also help lengthen your credit history. Loans appear on your credit report as soon as they are disbursed, even if you don’t start paying towards them until after you graduate.
An installment loan can also help you have multiple types of debt, beneficial to your credit.
7. Personal Loans
Personal loans are a form of financing that tend to carry higher APRs than credit builder loans or other forms of debt on this list. They can come as an unsecured or secured personal loan that relies on your credit score to determine your terms.
If you borrow money and make timely payments on these credit-building tools, they can be an outlet to demonstrate a positive payment history and begin building good credit habits.
While a costly form of credit, avoiding late payments and demonstrating a good payment history can improve your standing with any credit bureau receiving your payment history.
Though, as with all forms of financing, make sure you understand how much money you’re borrowing and how long you have to repay it. You don’t want to over-borrow, but if the personal loan doesn’t get repaid, this could harm your credit score in addition to harming your wallet.
Further, understand the impact of missing payments on a personal loan to your credit report. Making on-time payments is critical when credit building.
Make Sure Your Activity Appears in Your Reports from Credit Bureaus
When using any form of credit building outlined above, make sure your payment history gets reported to the credit bureaus.
You want your positive payments recorded. Otherwise, these efforts haven’t moved the needle to establish enough credit for you to take the actions you wish to take.
Confirm your monthly payments will get reported to credit card companies, auto loans, student loan servicers, landlords, or any other form of paying bills that might work to build a good credit score.
Also, activity on a debit card doesn’t count toward building credit as you only draw on your own balance, not against a line of credit. A debit card won’t help you establish positive credit history.
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What is a Credit Score?
A credit score is a number that predicts how likely you are to repay borrowed money.
It’s a three-digit numerical representation of the information in your credit report, managed by the three major credit bureaus: Equifax, Experian, and TransUnion.
This score ranges from 300 to 850 under the FICO scoring system, with lenders looking at these numbers when deciding whether or not to approve potential loans.
The most critical factor in determining your score is payment history, accounting for about 35% of the total. The other most significant factors are amounts owed (30%) and length of credit history (15%).
Balances on different types of loans make up less than 15%, while new account activity only contributes about ten percent.
Building good credit doesn’t happen overnight, as it measures your ability to manage loans and lines of credit wisely and responsibly over time.
What Goes into a Credit Score?
1. Payment History
Making timely payments is essential for your credit score, representing as much as 35% of your total FICO score.
Missing one payment can harm your credit, though it shouldn’t ruin it entirely.
Why such a significant impact? Lenders want to assess your ability to repay debts promptly, meaning you pay what you agree to pay when you agree to pay it.
Do this consistently and over long periods, and you will see your credit score increase.
Because of the outsized importance of this credit factor, staying on top of payment due dates and amounts becomes a necessity to build credit.
Keep track of when payments must go to creditors by setting up automatic payments where possible.
Setting your bills on auto-pay can save not only time for individually initiating each payment but also the headache of being late and dinging your credit score.
2. Total Available Credit / Credit Utilization Ratio
Your credit usage, especially concerning your available credit, can determine your credit rating as well.
The metric used to measure this credit usage, called the credit utilization ratio, is calculated by dividing your outstanding revolving credit balances by your total available revolving credit balances.
This ratio provides valuable insight to creditors about how you use credit.
Lenders want to know how much credit you are using, especially how much credit is available.
A high credit utilization ratio (above 30%) will likely hurt your credit score, while a low one (below 20%) may help it or not have any effect at all on your credit rating.
This accounts for 30% of your credit score.
3. Length of Credit History
Lenders want to see how long you’ve had credit and how well you’ve handled while open. This credit factor can determine 15% of your FICO score by evaluating the average age of your open lines of credit.
All things equal, longer average credit histories result in better credit scores.
4. Types of Credit (Diversity or Mix of Credit Lines)
Not only do lenders care about your history and your ability to make timely payments (both huge credit factors), but they also like to see a diversity of good credit opportunities you’ve had in the past and maintain today.
This means having several credit accounts, managing your credit limit responsibly, and maintaining an excellent payment history.
Children won’t have many opportunities to have a wide array of credit lines, but they don’t need these just now. Instead, they can start with a single line of credit as an authorized user through a family member’s existing or new credit line.
If teenagers start building credit now, this new line of credit will still help them in the long run so long as the account remains open.
5. Credit Inquiries (New Attempts to Access Credit)
Creditors also want to see how often you seek new credit. Regularly going after financing may indicate an increased risk because you constantly seek new forms of financing to make your finances stay afloat.
Whether true or not, this can still serve as a red flag on your score, potentially hurting your credit if done too often.
These pulls on your credit, called hard inquiries, stay on your report for two years or longer, depending on the type of inquiry.
A child or person with a thin credit file shouldn’t worry too much about this, as any inquiry that hits their report now will likely fall off before they need it.
At this age, the child wants to establish credit and slowly build their credit limit through having wise credit use and more extended credit history.
How to Build Credit Without a Credit Card
If you have thin credit or no credit profile at all, how do you build your credit? Lenders want to see how well individuals have managed their accounts and how much credit they can handle.
The best way for someone with a low or no score is to build it slowly and early.
As you begin establishing credit for yourself, you can apply for your own credit card—or even multiple credit cards—to seize cash back and rewards programs tailored to your needs and lifestyle.