Building Credit Without a Credit Card
You need credit. In order to buy a home, be eligible for loans, and live a financially healthy life, you’ll need to participate in some sort of credit. Many Americans turn to credit cards as the primary way to build their credit report and score, but they can also pose problems. Credit card debt adds up quickly and can be a pain to pay back, especially with high-interest rates. Luckily, there are options for those consumers who would rather stay away from credit cards but still want to work to build their credit. Building credit allows an individual to progress as a consumer, opening new avenues of credit for their future.
Over 70 percent of university graduates in the United States have student loans and it can be one of the first ways young adults establish a credit history and report. Because many student loans require a cosigner—like parents—to guarantee the loan, young adults can take out this type of loan without much or any previous credit history.
Once the grace period on a student loan has expired (usually six months after graduation), it’s time to begin making payments on those loans and building a healthy credit report. Student loans are repaid on a monthly basis, giving the borrower twelve opportunities each month to bump up their credit by proving they are a responsible borrower. Some students are even able to make payments on their loans while still attending school. If this is an option in your budget, you will graduate with an already increased credit score and less interest to pay over the life of the loan as you’ve been paying down the principal.
In almost all cases, rent payments are not reported to the three credit bureaus, so faithfully paying this particular bill won’t build up your credit. However, if you enroll in a rent-reporting service like Rental Kharma or RentTrack, that bill will be reported, building you a positive history of on-time payments.
An auto loan can be difficult to obtain without previous credit but can be achieved with the help of a cosigner (similar to those student loans). Just remember, if you need a cosigner, any late or missed payments will equally affect their credit and the lender could garnish their wages to pay off the loan.
Out of all of the types of loans that affect your credit score and report, a mortgage can be the hardest to get without an existing healthy credit score. But, if you do qualify for a mortgage and make on-time payments every month, it’s a sure way to boost your credit standing.