Wondering how to build credit without a credit card? You’re not alone. An entire cottage industry has grown up around the idea of “teaching” or “counseling” people how to build their credit score. It seems like every other television commercial is hawking a new set of ways to build credit.
Some people have difficulty being issued a credit card because of past credit history. Maybe you have a good enough credit history to obtain a credit card, but you don’t want another credit card, or are avoiding carrying plastic for fear of its potential negative impact on your credit score. No matter the reason, NoCreditCreditCards.com can show you how to build credit without a credit card.
Understand Your Credit Score
For starters, you need to understand what a credit score is, and how creditors use your credit score. In layman’s terms, a credit score is a number generated by a computer program based on your past credit activity. This program looks at reports from past creditors — like banks, department stores, credit card companies, and even some bizarre sources like your past landlords or library card accounts — and calculates a number between 350 and 800 that it then assigns to you as your credit score. Lenders look at this number to determine if you are “credit worthy”. Specifically, this computer program looks at factors like payment history, amounts owed, type of credit, length of credit, and new credit.
You may wonder what your credit score means. If you know what your credit goal is, you can tailor your specific methods for building credit to that goal. In general, you want your credit score to be 620 or higher. Why? This is the point at which lenders almost can’t deny you for a loan or a line of credit. You may not get the best interest rate at this score, but you’re in good company if you can get your credit score up to 620.
A score of 700 or higher will secure you the best terms for your bank loans, credit cards, car payments, and other credit extensions. Knowing what credit score generators are looking at gives us a leg up in figuring out ways to build credit. We can figure out how to build credit without a credit card by keeping in mind what the credit bureaus and lenders are looking for, and concentrating on those areas of your personal finances.
Piggyback on a Credit Card Account
The simplest way to build credit without opening a credit card account is known as piggybacking. If you’re lucky enough to have a relative who will let you piggyback on their credit card account, you can avoid opening one in your name. Sure, you won’t have the benefits of actually owning and using the credit card, but every time your piggyback partner uses their line of credit then makes a payment on time, your credit score will be positively impacted.
Limit Your Credit Applications
Another easy way to stabilize your credit score is to limit your credit applications. If you apply for multiple credit cards and loans in a short period of time, your credit score will drop considerably — this is the “new credit” factor that credit bureaus and lenders are looking at. When you apply for an extensive amount of credit extensions in one year, you will be deemed un-credit worthy. Stop the drop in your credit score by limiting your credit applications to two or three per year.
Believe it or not, paying your utility bills on time can build your credit, and fairly quickly. Each time you make a late payment on a utility bill, your credit score can drop by 10 or 20 points, while each on time payment improves your credit by around 5 points. Make a year’s worth of on time payments to your utility company, and expect a 50 or 60 point boost to your credit score, without taking on a credit card or doing anything drastic.
One obvious source of negative credit is unpaid debt. Many of us have unpaid accounts that we’ve simply forgotten about — it could be as simple as a movie you never returned to your favorite rental chain, or a library book you didn’t pay the late fee on. If you have old unpaid debt on your credit report, it will really drag your credit score down. One of the best ways to build credit is to undo the damage you have done to your credit in the past. Pay off these old accounts and make immediate arrangements with the creditors you owed money to — they have the ability to have the negative credit judgments removed from your credit report.
If you have credit cards or credit accounts open already, one way to build credit is to leave these accounts open — even if you’re not using them anymore. It is counter-intuitive, and most people assume that if you aren’t using a credit card or department store account, you should close the account. Credit bureaus look at how much credit is available to you, and how long that credit has been at your disposal. If you have an old credit card that is paid off, let it sit in your wallet and gather dust. The longer you have a credit account with no outstanding balance, the greater its positive impact on your credit score.
Building Credit Without Opening a Credit Card
Building credit without opening a credit card sometimes requires a drastic step or two. Since getting approved for a credit card is challenging and can lead to further credit problems, you should consider applying for an auto loan. Auto lending groups offer a huge variety of programs to help people build or re establish credit. Yes, the interest rate on an auto loan can often be high, but if you are prepared to make regular payments, the boost to your credit score will be well worth an initially high interest rate. After a year or so of building your credit score, you can reapply for a lower interest rate. For many of us looking to build credit without a credit card, taking on an auto loan is the perfect stepping stone.
There are a variety of ways to build credit. You don’t have to open a credit card if you don’t want to — in fact, none of the above suggestions require you to possess a new credit card or department store account. Be creative — any positive financial activity on your part, from paying bills on time to establish new long-term credit extensions, will have a positive impact on your credit score.
What Leads to Success?
Finally, I want to leave my readers with a bit of wisdom. Watch this 3-minute video by Richard St. John called “Secret of Success in 8 Words, 3 Minutes”. St. John was asked one day by a girl on an airplane, “What leads to success?”
7 years later, he has conducted 500 interviews with successful people. From all those many success stories, he extracted 8 simple words which explains the success of those 500 people. In this pithy three-minute lecture, he provides a brilliant essay on what it takes to succeed in life. Absorb this information and use it.
In eight short words, he provides your secret to success in life: Passion, Work, Good, Focus, Push, Service, Ideas and Persist. I’m going to write a whole post on this someday soon, explaining each one of these words in greater detail. The upshot is this:
Find a single idea you love. Pursue that idea with confidence and passion. Work hard. Find some way to serve people or serve things to people they’re going to want. Focus on your goals. And persist when difficulties inevitably arise. But before you start on this lifelong success, build your credit score. It will prepare you to succeed when the time is right.