Everyone needs to have a credit history to help finance major life purposes. However, not everyone wants to have a credit card; here are some ways to build credit without opening a credit card.
How is a credit score calculated?
For simplicity’s sake, and because other similar models are calculated in a similar way, we will be using the FICO score criteria to explain how your credit score is calculated.
Your FICO score is calculated using the data on your credit accounts. It is based on your payment history, your credit utilization, the age of your credit accounts, your credit mix, and the number of new accounts on your credit report. The breakdown is as follows:
- 35% : Payment history
- 30% : Credit utilization
- 15% : Age of your credit accounts
- 10% : Credit mix
- 10% : new accounts and hard inquiries
Based on this data, it is best to keep your credit utilization low, meaning that you keep your debts low in relation to the total amount of credit available to you. In addition to making your payments on time to ensure you have a good credit score.
Since only 10% is based on your credit mix, not having a credit card should not negatively impact your credit score.
Read More: Credit Score Guide for Beginners
What is considered a “good” credit score?
Credit scores range somewhere between 300 and 850. A good credit score is anything that is 700 points or higher, with anything above 800 to be excellent. A bad credit score is anything that falls below that 650 mark.
Can you have a credit score without having a credit card?
Although credit cards can be an easy way to build credit, you do not need a credit card to have a credit score and a good one at that. Any financial products like an auto loan for your car, student loans, or even your rent or bill payments can help you build your score.
In addition, a secured credit card may be a good option for credit newbies that do not want to worry about racking up debt. They can still be used as a credit card, but your credit limit is dependent on the deposit you put down.
You may also want to look into becoming an authorized user on a trusted individual’s credit card. If they are making payments on time and paying their card off in full each month, it will positively impact your credit score and help you to build it. This also relieves some of the stress of being financially responsible for a credit card bill. Be sure to set guidelines in place for use of the card.
Building credit without opening a credit card
There are actually a lot of ways that you can build your credit without ever having to open a credit card. Here are some of the top ways to build credit without ever having to open a credit card:
Rent payments
Did you know that you can use your rent payments to improve your credit? This is especially great for people new to credit or with lower credit scores to start out with. However, your landlord must report these payments to one of the major credit bureaus; you, as the consumer, cannot report your own rent.
Utilities and bills
Years of on-time payments for utilities and bills can have a hugely positive effect on your score. In addition, having a phone plan in your name may be another way to build your credit. Some companies will report payment history to the credit bureaus, helping you to build your credit as long as you are paying your phone bill on time.
Student loans
Your federal student loan payments are reported to all three major credit bureaus, Equifax, Experian, and TransUnion. However, missed or late payments on your student loans can negatively impact your score.
Credit-builder loans
Opening a personal loan targeted directly at building your credit may be worth it if you are trying to build your credit history from scratch. Credit-builder loans are often offered by credit unions and banks in order to help you build a credit history. However, these loans often require the use of collateral in order to qualify for it.
Personal loans
If you can afford to take out a personal loan and know you will be able to pay your bill on time each month, taking out a small personal loan may be beneficial to your credit score. Beware, personal loans, especially those for people with little to no credit history, can come with high-interest rates – if this is the case, a credit-builder loan may be a better choice.
Employment
Although having a job does not directly impact your credit score, many lenders want to see a stable employment history in order for you to obtain a loan.
Other tips
As mentioned previously, making consistent on-time payments is the best way to build your credit history. In addition to this, keeping your debt-to-credit ratio, or credit utilization low – typically under 30% – can help you establish a good credit score.
In summary
If you do not want to open a credit card, you do have other options that can be used to build and improve your credit score. Things like student loans, auto loans, or even utility bills can be utilized to build your credit.
Remember, the best way to build your credit score is to make consistent and on-time payments for each of your bills. In addition, some landlords may also be reported on the payment history section of your credit report.
The bottom line is that no, you do not need a credit card account to start building out your credit file for the future of your financial health.
The best way to build good credit is to use your credit products, such as loans, wisely. And, remember, if you pay off your credit card in full each month, you will never actually go into debt and will never have to worry about the high-interest rates that credit cards tend to have. However, if you have credit challenges, Cambio can help you repair your credit.
