Building Your Credit Score Without a Credit Card

Many people ask us for advice on how to build their credit score without applying for a credit card.  Most of these individuals are young and just beginning to develop and understanding of how important your credit score can be now-a-days.  Many are surprised to learn that their credit can effect being considered for employment with many Fortune 500 Companies as well as with the Federal Government and other highly desirable employers who place a high value on personal attributes like credit worthiness, responsibility, and financial savvy and maturity.  The financial decisions your make now will go a long way as you purchase an automobile, buy your own home, are set out to find your first apartment.

How to Build Your Credit Score Without a Credit Card

It’s much easier to develop a good habit than to correct a bad one.   If you are just starting to build your credit you have a once in a lifetime opportunity to start out right and stay there. Here are some decisions you can make and actions you can take in building your credit score without a credit card.

Can you have a credit report, even if you have never had credit?

Perhaps, it is possible for the credit bureaus to make mistakes.

  • Be sure you check your credit report at least once every year and ensure there are no mistakes or worse yet fraudulent accounts set up in your name.
  • Identity theft is on the rise and with more and more people experiencing financial hardship it’s better to be safe than sorry, so check your credit report.
  • If you do find mistakes, or worse someone has borrowed your identity, you will need to get the problem cleared up before applying for new accounts.
  • Be sure you have a checking or savings account.
  •  Opening a checking and a savings account is one of the few actions your can do as a minor in building your credit score without a credit card.
  •  Lenders see bank accounts as stability and there is no easier way to start building a financial history than to open your own account.
  • If for some reason your bank will not let you open an account as a minor, consider another bank or opening a joint account with responsible adult or parent.
  • Two of the biggest factors in the determination of a credit score are one, do you pay your bills on time and two, how much of your available credit do you really use.

Building Your Credit Score Tips

It is essential that you pay your bills on time, every month.

  • If you think this might be hard for you, consider setting up automatic payments though your bank so your will never, ever, pay late.
  • You may not think it’s such a big deal to pay late, but by paying your bills even one day late, you accumulate additional charges and fees that can really add up over time and you will be charged interest on those fees if you don’t pay your bill off every month.
  • Should you miss a payment the consequences are even worse, your credit will be adversely affected and can take up to seven years for the blemish to disappear from your history.  One of the fastest ways to establish a credit history can be to borrow or piggy-back off someone else.
  • By getting someone to co-sign a loan for you that you might not otherwise be able to get on your own you can establish credit quickly.
  • A car loan is an excellent example and will show up on your credit report right away.
  • As long as you pay it off responsibly, it will help to increase your credit score.

If you decide to establish credit with a credit card, consider using a secured credit card.  A secured credit card works the identically and provides all the same benefits of a standard credit card, the only difference is you supply the collateral or security for using the card.  For example, if you give the bank $500 as security for the credit card, typically the bank will give you credit for as much, or perhaps slightly less than the amount used to secure the card.  You make the decision as to how much or how little of the $500 limit you use, and again, provided you pay your balance off each month, or you at least make your payment on time each month; you will establish credit by securing the credit card with your own money.

Ultimately, should you decide you want to establish your credit by using an unsecured credit card; you will want to ensure you don’t max out your credit card.  The general rule of thumb is to keep your credit use to 30% or less of your total available credit.  The less of your total credit available you use, the better your credit score will be.  This is a good rule to follow to keep you from getting in over your head in indebtedness as well.  Try and pay your credit card off every month.

A common misconception about establishing credit is that you have to carry a balance to establish good credit.  Not true.  You can establish credit by simply using the credit card to make purchases and then paying off that balance at the end of the cycle, by the due date.  This way, you get to use their money instead of yours your average daily balance will show on your credit report.  So paying your bill off each and every month demonstrates your maturity in handling your debts and it assures you the highest possible rating.
Remember, building a credit it score without a credit card leads to the development of  good habits and will keep you on the right path with your credit.

Leave a Comment

Previous post:

Next post: