4 ways to build credit without a credit card

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4 ways to build credit without a credit card

By CARRIE DEAKIN

Many young adults are shunning credit cards. According to a 2014 Bankrate survey, 63 percent of 18 to 29-year-olds don't have a credit card. In contrast, only 35 percent of adults over age 30 don't have a credit card.

But why is this the case?

Why don't millennials want credit cards?

One reason why millennials may not be getting credit cards is because they just don't know enough about credit. "(Credit card providers) are entrusting you with incredible financial responsibility and not giving you the resources to use (the cards) responsibly," says 29-year-old Christine, a woman who spoke to Credit Karma about her experience with credit.

Andrew Schrage of Money Crashers says, "I think a lot of young adults saw some of the mistakes their parents made with credit cards and simply want none of it. Plus, when you forego credit cards, you can eliminate the possibility of spending money you don't have."

The Great Recession also may have increased millennials' uneasiness about finding employment. A majority of both older Americans (age 30 and over) and younger Americans (age 18 to 29) consider it harder for young people today to find a well-paying, steady job than previous generations, according to a 2014 Allstate / National Journal Heartland Monitor Poll.

And if they do find employment, they're not sure how long it'll last. As 28-year-old Nona Aronowitx told the LA Times, "We're not sure if we'll have jobs in six months." Without confidence in the security of their jobs, many young adults don't count on being able repay new debt.

Unfortunately, avoiding credit may not be the best financial decision. Your credit is often used to decide if you'll be approved for things like an apartment or an auto loan. And because the age of your credit accounts is typically one factor that is used to calculate your credit score, it's important to start building a history as soon as possible.

So what can you do to build credit if you don't want to get a credit card? Here are a few alternatives.

1. Pay your rent and bills on time.

Did you know that VantageScore 3.0 may factor in positive rental-payment data to your score if the payments are included on your credit report? As payment history is the most important predictor of risk for your VantageScore 3.0 credit score, this could be good news for consumers who want to demonstrate their creditworthiness without having to open a line of credit.

Keep in mind that your utility and rental payment history may not be reported to the bureaus, so you may need to specifically ask your landlord or utility provider to report your payments and they may or may not agree.

2. Become an authorized user on someone else's credit card.

When you're the authorized user on a credit card, the cardholder's activity typically appears on your credit report as if the card is your own. A cardholder with a solid payment history can help you build credit, but the opposite is also true. If that person misses payments, it could damage your own credit. If you consider this option, it's important to ask someone with sound credit card habits.

Being an authorized payer can be slightly less risky than co-signing a credit card or loan, because you typically won't be legally responsible for the debt if the cardholder stops making payments. However, if you're an authorized user, any delinquent payments will likely be reflected on your credit report, which could harm your credit.

3. Make your student loan payments.

Your student loan payments are typically reported to the credit bureaus, so making each payment on time can help build your credit score. Be sure the loans are in your name though. If, for example, your parents took out a Direct PLUS loan for your tuition, the loan may be in their name. This means that even if you're making payments on the loan, it may not be reflected on your credit report because the loan isn't in your name. If this is the case, consider asking to be added as an authorized payer on the account.

4. Take out a credit builder loan.

With a credit builder loan, you borrow a modest amount - say, $500 - from a credit union or community bank. The loan is secured by a Certificate of Deposit (CD) or a savings account that you can't access until the loan is repaid. On-time payments are typically reported to the credit bureaus, which helps you establish positive payment history. However, if you make late payments, or default, this negative activity is likely to be reported as well.

Once you've paid off the loan, you get the balance in the CD or savings account plus dividends, so you might actually earn a little money, too. Because you're borrowing a set amount, a credit builder loan could be a way to establish or improve your credit without the temptation of an open line of credit.

Bottom line

If you're hesitant to get a credit card right now, these strategies can help you become more comfortable with managing and repaying debt. And if you decide you're ready to apply for a credit card, you'll have the tools to use it responsibly.

Editorial Note: We're here to provide tools and educational materials to help you take control of your credit. Even though compensation may affect which companies we write about and products we review, our marketing partners do not review, approve or endorse our editorial content. In other words, the opinions you read here are our own.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

 

Did we get something wrong? Our editorial team loves research, so the information on our platform is fact-checked and accurate (to the best of our knowledge) when we initially post it. We do our best to keep the content up to date. We may not catch everything, though, so we don't make any guarantees about the accuracy or completeness of the information provided. If we did miss something, let us know by emailing us at corrections@creditkarma.com. If you have a question about your Credit Karma account or credit report(s), please submit a help request, and our support team would be happy to assist you. To get complete details about a product, we suggest visiting the company's website.

About the author: Carrie Deakin is a copywriter at Credit Karma. When she's not wordsmithing, you'll find her in the weight room, on the balance beam or at a baseball game.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

All Comments

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Top Contributor
2076 Contributions
3185 People Helped

Helpful to 2 out of 3 people

1)  Pay your Bills on Time is the golden rule no matter weather it's rent, bill , loan etc. Never Miss a payment.

2) You Never want to be on someone else Account as a authorized user unless you are married to that person and then only if their credit history is 100% Clean. No to be a authorized user on a Parents ,  friends or anyone else that is not your spouse. 

3) See One above

4) Credit Building Loan,   No would never have anyone do that. 

Bottom Line,   Pay cash or use your debit Card,  Don't worry about Credit Score or Credit History it you don't plan on using it. 
But if you plan on buying a house or auto with a loan then you may need to rethink things.

Having a Credit Card does not mean you have to use it or carry it on yourself.

Top Contributor

Reply by
Velektor

59 Contributions
35 People Helped
Helpful to 4 out of 4 people

I don't understand why you oppose the credit building loan. My credit unuion offers those, $500 loan, deposit it to your account and auto pay $100 every month. 5 months later you've paid it all back and have built some credit. I just don't see the downside.

Reply by
silverwateroak

4 Contributions
0 People Helped
Helpful to 0 out of 1 people

Enter Your Reply

Pay your bills on time is the Golden Rule, "do unto others what you want done to you".  If you lent someone money or sold them a service or product, don't you want to be paid on time?  You know, you got bills and rent too!

Don't be on someone's account unless you have the whole balance plus in your account and are ready to pay the balance off today.

Credit Building Loan - You need to build your credit to a level where you feel confident that this loan may help you. Ignore the credit card offers on Credit Karma and Credit.com, read these site's articals on improving your credit. Making payments on time (is huge), don't max out your credit limit (stay around 5 to 7%), communicate with your lenders thru letters or phone.  If your not happy with your response on the phone ask to speak with the supervisor, not happy at that point write a letter.  Get involved with your credit!!!

Bottom line is - if you want to get involved with a credit building loan make sure you have the full amount of the loan in your sanings account, this kind of a loan is a play loan.  It's not bad but you could screw up everything you worked for trying to improve your credit.

It's not hard but it's not easy to get your credit back on track, it takes some time and work but it can be done, even in a few months.  The big thing is, you have to get your lenders to see you are serious.

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