Writer: Ashley Fricker
Editor: Lillian Guevara-Castro
Reviewer: Jon McDonald
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It may seem a bit paradoxical, but here, we’ll take a look at how to build credit without a credit card.
No matter how tasty others find a dish, if you’ve had a horrible experience with a particular food, chances are you’ll avoid it like the plague thereafter.
Similarly, regardless of how many people extol their virtues, if you’ve been burned by credit card use before, chances are you’re not too keen to give them another chance.
Unfortunately, while there are thousands of alternative meal choices, you typically need credit to get credit. It’s kind of like the old question of which came first, the chicken or the egg? It can be difficult to avoid credit cards entirely, but other credit-building options do exist. Let’s explore some potential ways to build credit without a credit card, including personal installment loans, credit-building loans, financing a vehicle, or even taking out a mortgage.
1. Take Out a Personal Installment Loan
You generally need a credit product to build a credit profile, so you’re likely looking at some type of loan if you want to avoid credit cards. Personal loans are among the most flexible loan types and can be used for just about anything you may need to purchase.
Personal installment loans can be obtained in a wide range of amounts — from $500 up to $35,000 or more, depending on your credit risk — and can extend for up to 72 months. Borrowers can often easily compare sizes and lengths through online lending networks, like those below.
- Loan amounts range from $1,000 to $35,000
- All credit types welcome to apply
- Lending partners in all 50 states
- Loans can be used for any purpose
- Fast online approval
- Funding in as few as 24 hours
- Loan amounts range from $500 to $10,000
- Compare quotes from a network of lenders
- Flexible credit requirements
- Easy online application & 5-minute approval
- Funding in as few as 24 hours
- Loan amounts range from $1,000 to $35,000
- Flexible credit requirements
- Loans can be used for anything
- Five minute application
- Funding possible in as few as 24 hours
- Large lending network with multiple partners
Although some personal loans are available that allow collateral, most personal installment loans will be unsecured credit, meaning there’s no down payment or other security. As such, getting a personal loan with no, limited, or bad credit may be difficult.
At best, without a decent credit history, be prepared to pay two-digit interest rates. You’re also unlikely to be offered a loan at the maximum end of the size range, especially if your income isn’t very high.
Once you’ve obtained a loan, be diligent about making your required payments on time every month to build a positive payment history. It takes six months of credit history to be eligible for a credit score.
2. Use a Credit-Builder Loan
If you don’t actually need to finance anything, personal loans can have a higher price tag than you’re willing to pay. But they’re hardly the only type of loan you can use to build credit.
In fact, there’s a whole slew of loans specifically designed to help people build credit. They’re called — wait for it — credit-builder loans. These loans are typically offered by credit unions and local community banks, but are also starting to appear online from companies like Self Lender.
Unlike traditional loans, in which you borrow money to make purchases and then repay the loan, the money you “borrow” with a credit-builder loan is typically put into a secure savings account to which you don’t have access until the loan is paid off.
Although you can’t spend the loan funds, you’ll still make regular payments and your repayment activity will be reported to the credit bureaus like any other loan product. This means you can build positive payment history by making your payments on time every month, then get your payment money back, often times with interest added, once the loan term is complete.
3. Finance an Automobile
Between things like work commutes, weekend errands, and summer road trips, Americans log an average of over 3 trillion miles on the road each year — which is a number that indicates that you’re likely going to need a new car at some point.
If you finance that car with an auto loan, you can build credit as you rack up the miles. Without a well-established credit history, you’ll likely pay a little more for your loan, so be sure to compare offers, perhaps through an online lending network like those below.
- Dealer partner network has closed over $1 billion in auto loans
- Can help those with bad credit, no credit, bankruptcy, and repossession
- Established in 1999
- Easy, 30-second pre-qualification form
- Bad-credit applicants must have $1500/month income to qualify
Unlike most personal loans, auto loans are secured loans. In most cases, the vehicle you purchase with an auto loan acts as the collateral for that loan, which has both ups and downs.
On the one hand, this means it can be easier to get an auto loan with limited credit than other types of financing because the risk is lower for the lender. At the same time, it also means that your vehicle can be repossessed and sold should you default on your loan.
4. Get a CD Loan
A common offering in banks and credit unions alike, certificates of deposit (CDs) are savings tools generally used by those who want a better return than a standard savings account provides, but who don’t want to invest their funds in stocks or other risky products.
Essentially, the consumer deposits a specific amount — usually a few thousand dollars — into the CD account, where it will stay for a specified period of time (typically three to five years).
Once the term is up, the consumer receives the principal plus all accrued interest. If money is withdrawn before the end of the term, however, stiff fees are applied to the withdrawal.
While you can’t remove your money early without penalties, some banks will allow you to borrow against the funds in your CD for a short-term loan, often at a much lower interest rate than other types of financing.
The maximum (and minimum) amount you can borrow, how long you can borrow it, and how much it will cost you, can all vary based on the individual bank, the amount in the CD account, and the length of time left on the CD term.
5. Become an Authorized User
Although this method does involve a credit card, you aren’t the one who signs up for it. Instead of taking on a credit card in your own name, you can become an authorized user on a credit card of a friend or family member.
Authorized users get a card tied to the primary cardholder’s account and the account is usually reported on the authorized user’s credit reports.
Plus, not only can authorized users make purchases, but they’ll even earn rewards when using a great rewards card like our picks below.
Additional Disclosure: Bank of America is a CardRates advertiser.
- Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
- Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. To earn cash back, pay at least the minimum due on time. Plus, earn 5% total cash back on hotel, car rentals and attractions booked with Citi Travel.
- Balance Transfer Only Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 17.49% - 27.49%, based on your creditworthiness.
- Balance Transfers do not earn cash back. Intro APR does not apply to purchases.
- If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
- There is an intro balance transfer fee of 3% of each transfer (minimum $5) completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
Additional Disclosure: Citi is a CardRates advertiser.
- INTRO OFFER: Unlimited Cashback Match for all new cardmembers. Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. You could turn $150 cash back into $300.
- Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases.
- Redeem cash back for any amount. No annual fee.
- Get a 0% intro APR for 15 months on purchases and balance transfers. Then 17.49% to 26.49% Standard Variable Purchase APR applies, based on credit worthiness.
- Terms and conditions apply.
Being an authorized user can be a good way to build credit, but it isn’t without its risks — for all parties involved.
From the authorized user‘s perspective, if the primary cardholder doesn’t practice good credit behavior — e.g., if they carry a high card balance — that poor behavior may be reflected on the authorized user’s credit report.
On the other side, while authorized users are able to make purchases to the account just like the primary cardholder, authorized users are not legally responsible for repaying the debt. So an authorized user could rack up a huge bill, but the primary cardholder could be stuck paying it.
6. Finance Your Education
Another way to establish and/or build credit is through the responsible repayment of a student loan — which may be one of the few silver linings of student debt.
In most cases, your student loans won’t come due until about six months after you graduate, but that doesn’t mean you can’t start paying them off early to build your positive payment history (and reduce the total amount of interest you’re stuck paying).
7. Take Out a Mortgage
As with other types of loans, mortgage loans can be used to build credit through responsible repayment. And while getting a mortgage without a credit history will likely require a pretty decent down payment, it’s not an impossible task.
Using an online lending network, such as LendingTree, can connect you with a wide range of lenders to increase your odds of finding the right lender for you.
- Find lenders for new home purchases, refinancing, home equity loans, and reverse mortgages
- Lenders compete for your business
- Offers in minutes
- Receive up to 5 loan offers and select the right one for you
- Founded in 1996
- Over $250 billion in closed loan transactions
Depending on your current credit situation, you’ll typically need at least a 20% down payment to obtain a conventional mortgage, though a larger down payment may help smooth the way if your credit is severely limited.
Another option may be a mortgage insured by the FHA (Federal Housing Administration). FHA-backed loans require much smaller down payments than conventional mortgages and typically have much more flexible credit requirements.
8. Request Bill/Rent Reporting
For most of credit-scoring history, housing and utility payments were only sporadically considered in credit assessments. More recently, however, there has been an increased interest in incorporating rent and utility payments into both credit reports and scores.
Along those lines, the most recent FICO consumer scoring model, the FICO® Score 9, is one of the first to use rental data in its scoring algorithms.
Unfortunately, few landlords — as little as 0.3% — report rental data to the credit bureaus automatically. Although you can request that your landlord report your rental trade line, they’re under no legal or financial obligation to do so.
9. Use a Charge Card
This next option may skirt the credit card line, but it does vary in one key way that may make all the difference for some users: you can’t let balances carry over indefinitely.
With a charge card, users still have access to a reusable line of credit, but because balances can’t roll over from month to month, there are no interest fees that build up every month.
At the same time, if you can’t pay off your balance, you’ll be charged some serious late fees, so never charge more than you can pay off at the end of the billing period.
10. Try a Secured Credit Card
While charge cards might skirt the credit card line, secured credit cards are firmly on the dark side of it. That being said, secured credit cards eliminate a lot of the risks that traditional unsecured credit cards come with, potentially making them a better choice for the credit card averse.
The main difference is that secured credit cards require an initial deposit, and that deposit typically dictates the size of the credit line. For most secured cards, including many of our top-rated picks below, the minimum required deposit is $200.
Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. The secured Chime Visa® Credit Card is issued by The Bancorp Bank, N.A. or Stride Bank, N.A. pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank.
*Money added to Chime CardTM will be held in a secured deposit account as collateral for your Chime Card, and you can spend up to this amount. You can use money deposited in your Secured Deposit Account to pay off your charges at the end of every month.
**Out-of-network ATM withdrawal and over the counter advance fees may apply.
***With a qualifying direct deposit, earn 2% cash back on category of choice on eligible secured Chime Visa® Credit Card purchases.
****On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Results may vary.
So long as you keep your account in good standing, the deposit you put down for your secured credit card is completely refundable when you close the account (or upgrade to an unsecured credit card).
Additionally, you can avoid paying interest fees on a secured credit card simply by paying off your full balance each statement cycle.
Don’t Fear Credit Cards
Much like a bad fish experience can put you off seafood, an unfortunate credit card experience can certainly put you off plastic. Thankfully, a credit card aversion doesn’t mean you have to do without credit entirely.
But, there’s also no need to fear credit cards. When used responsibly, credit cards can be secure and rewarding ways to make purchases.
Of course, the key words here are “used responsibly.” Don’t put more on your credit cards than you can repay in full by the end of the billing period and always pay your bill before the due date to ensure a happy, healthy credit card relationship.
Advertiser Disclosure
CardRates.com is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free, we receive compensation for referrals for many of the offers listed on the site. Along with key review factors, this compensation may impact how and where products appear across CardRates.com (including, for example, the order in which they appear). CardRates.com does not include the entire universe of available offers. Editorial opinions expressed on the site are strictly our own and are not provided, endorsed, or approved by advertisers.
Editorial Note: Our site content is not provided or commissioned by any credit card issuer(s). Opinions expressed on CardRates.com are the author's alone, not those of any credit card issuer, and have not been reviewed, approved, or otherwise endorsed by credit card issuers. Every reasonable effort has been made to maintain accurate information; however, all credit card offer details, including information about rewards, signup bonuses, introductory offers, and other terms and conditions, is presented without warranty. Clicking on any offer on CardRates.com will direct you to the issuer's website, where you can review the current terms and conditions of the offer.
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