How to build credit without a credit card

4 min read

If you don’t have much of a credit history, you might be wondering how to start building credit. There are ways to improve your credit score, and build a credit history with the three major credit bureaus, before you get a credit card. It’s still a smart move to apply for a credit card at some point — credit cards are excellent financial tools and can help prepare you for larger credit opportunities like mortgages — but if you don’t have a credit card yet, here’s what you need to know to build your credit.

What is your credit score?

Your credit score is a three-digit number that reflects your ability to use credit responsibly. Many lenders use the FICO credit scoring system, which pulls information from your credit reports and assigns you a number that falls within one of five categories:

  • Poor: less than 580
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Excellent: 800 or above

Your credit score goes up or down depending on the credit-related actions you take. If you have a history of on-time payments, for example, your credit score will be higher than if you have a history of late payments. By practicing good credit habits, you can build and maintain a good to excellent credit score.

Why does your credit score matter?

Your credit score is important because it helps determine what types of credit will be available to you in the future — and what interest rates you’ll be charged. People with good or excellent credit have access to credit cards that offer high-level rewards and low APRs; people with poor credit often have to settle for credit cards with low credit limits, few rewards and high interest rates.

But your credit score doesn’t just impact your credit card eligibility. A credit score can help determine whether you get a mortgage, what interest rate you’re offered on a car loan and even whether you’re able to rent an apartment. This is why building a solid credit history and a good credit score is so important.

What impacts your credit score?

There are five major factors that impact your credit score. Here’s how they stack up according to the FICO scoring model:

  • Payment history: 35 percent of your credit score is based on whether you make regular on-time payments on your credit accounts. This includes not only credit cards, but also mortgages, car loans, student loans and so on.
  • Credit utilization: 30 percent of your credit score is based on the percentage of credit you’re currently using. Ideally, your credit balances should make up between 10 and 30 percent of your total available credit. This means that if you have $10,000 in total credit available to you, you shouldn’t be carrying more than $1,000 to $3,000 in debt.
  • Age of credit: 15 percent of your credit score is based on how long you’ve had your current open credit accounts — the longer the better.
  • Credit mix: 10 percent of your score derives from whether you are successfully able to maintain multiple types of credit accounts, such as a credit card and a car loan.
  • New credit: 10 percent of your credit score comes from how often you request new credit. This is why opening a new credit card can lower your credit score (though a single credit inquiry won’t hurt your score that much, so don’t let that prevent you from opening a new line of credit when you need one.)

Once you understand what makes up your credit score, you can start taking steps to boost your credit score. Lowering your credit utilization by paying off your balances, for example, is one of the quickest ways to improve your credit score.

The quickest way to hurt your credit score? Max out your lines of credit and stop making payments. If you run up a debt you can’t pay off or fail to make at least the minimum monthly payments on time, your credit score is likely to suffer.

How to build credit without a credit card

You don’t need a credit card to start building a credit history. If you have limited or no credit, here are three ways to get your credit going in the right direction:

Report rent and bill payments to the three credit bureaus

If you make rent or utility payments, make sure the three credit bureaus (Experian, Equifax and TransUnion) know. By signing up for a service that reports rent and bill payments to the three bureaus, those payments can become part of your credit history — and remember, on-time payments make up 35 percent of your credit score.

Become an authorized user on someone else’s card

Before opening a credit card of your own, consider becoming an authorized user on someone else’s. If you have a parent or partner with good credit, becoming an authorized user on one of their credit cards can help boost your credit score. Just make sure that you choose a card that reports authorized users to the three credit bureaus, and that the person who owns the credit card uses their line of credit responsibly.

Take out a loan and make on-time payments

Credit cards aren’t the only credit options out there. Personal loans, car loans and credit-building loans are all ways to apply for credit without a credit history. Once you secure your loan, make sure you make on-time payments every month.

When should I get a credit card to build credit?

Opening a credit card is a good way to build your credit score as long as you use your credit card responsibly. If you don’t feel like you’re ready to handle the responsibility of a line of credit, it might not be a good idea to get a credit card. However, if you’re financially able to make monthly credit card payments and cover any balances you charge to the card, it might be time to apply for your first credit card.

There are many credit cards available to people with no credit history. You might want to consider a secured credit card, in which you pay a small refundable deposit in exchange for a line of credit. Although your first credit card might not come with a high credit limit or big rewards, keep building your credit history and your credit score. Once you establish good or excellent credit, you’ll be eligible for some of the best rewards credit cards out there.