Credit cards are one of the most common tools consumers can use to begin building credit. But if you are unable to qualify for a card — or don’t want to open one — there are other ways to build credit and demonstrate a history of responsible borrowing to lenders.

Factors that impact your credit

Your credit score is influenced by several factors — and you often don’t need a traditional credit card to make credit-savvy moves. Aspects that impact your credit include:

  • Age and mix of your accounts: Keeping your oldest accounts open and maintaining a diverse mix of different account types can help your credit.
  • Hard inquiries: Hard inquiries on your credit report, which often happen when you apply for a new credit card or loan, can temporarily negatively affect your score.
  • How much you owe: Your total balance significantly impacts your score. Credit bureaus consider both the total amount you owe and your credit utilization, which refers to the proportion of your total credit limit you’re currently using.
  • Your payment history: Your payment history is one of the most important factors that affect your score. Consistent on-time payments will raise your score, while missed or late payments will likely negatively affect you.

6 ways to build credit without a credit card

Looking to improve or repair your credit without opening a credit card? You can influence your credit score in several ways, including taking out a loan, becoming an authorized user, or adding other types of monthly payments, like rent or utility bills, to your credit report.

1. Become an authorized user

Many credit card companies allow cardholders to add authorized users. Aauthorized users get a physical card and can use the main cardholder’s line of credit without a credit check.

This lets you use a card and have credit activity reported to credit bureaus without requiring you to have your own card. Be careful, though. If the cardholder overspends or misses a payment, it will reflect poorly on your credit score. You are tied together financially, and each other’s actions can affect the other’s creditworthiness. You also want to make sure the main cardholder is comfortable with your spending, or it could affect your relationship.

2. Get a credit builder loan

If you don’t have much credit history or you have bad credit, you may have a hard time getting approved for a traditional loan. Instead, you could use a credit builder loan.

A credit builder loan is typically between $300 and $1,000. The lender will put the full amount into a secure account. Instead of using the money, you make a fixed payment monthly until you’ve paid off the loan. You’ll receive the loan proceeds minus any applicable fees after the loan term.

Credit builder loans offer a great way to build credit because you’re making regular payments without spending extra money. Plus, they’re easier to qualify for than a typical credit card or loan because you’re not borrowing money outright. Your loan payments will still be reported to the credit bureaus, which will help boost your score.

2. Apply for a personal loan

Personal loans offer another opportunity to build credit without opening a credit card. Making on-time payments on your loan can help you improve your credit score.

While these loans typically have higher APRs than credit builder loans (especially if you have a limited credit history or previously defaulted on loans), they can help you establish a solid credit starting point. Not all personal loans are easy to qualify for, but there are plenty of options for borrowers with limited or poor credit.

Check your ability to pay it back before deciding on a personal loan. Your credit score will take a hit if you aren’t able to make on-time monthly payments.

3. Consider a car loan

Auto loans can also help to improve your credit score when you make on-time monthly payments. Payments for car loans are also reported to credit bureaus.

Because auto loans are secured loans that use your vehicle as collateral, they’re usually easier to qualify for than other loan types. Look for a loan with a low interest rate and monthly payments you can afford.

4. Apply for a secured credit card

Secured credit cards have lower approval thresholds than their unsecured counterparts because cardholders need to supply a cash deposit in advance.

The sum of your deposit generally corresponds to your accessible credit. For example, a deposit of $200 provides you with a $200 credit, a deposit of $500 equates to $500 credit, and so forth.

Secured cards operate much like debit cards, but they use your cash deposit as a basis instead of depending on your checking account.

When you’re applying for a secured credit card, make sure the credit card provider is sharing your account details with all three credit reporting agencies. After several months of consistent on-time payments, you may qualify for an upgrade to an unsecured credit card.

5. Repay an existing loan

Repaying existing loans — such as student loans — can improve your credit rating if you pay on time and avoid defaulting. By paying your student loans according to the agreed terms, you’re improving your credit score.

It may be worth looking into a debt relief company if you can’t maintain your payments. Doing this will decrease your credit score for a while. However, it might help you increase it if you can keep up with your payments after some time.

You might also want to look into debt consolidation to help you pay off your existing loans.

6. Report rent and utility payments

Credit bureaus recognize that financial products like loans and credit cards may only paint a partial picture of a borrower’s financial standing. Being able to pay other bills on time, like rent and utilities, can be another strong indicator of financial stability. Consequently, credit agencies are typically open to using these things toward your credit score.

If your landlord or property management company reports your monthly rent payment to credit agencies, your history of on-time rent payments can help boost your score. You may be able to report your data to Experian RentBureau or sign up for services like Experian Boost, which tracks your utility payments every month and includes them on your credit report.

Other recurring payments, such as internet and phone contracts, can help.

Avoid hurting your credit

To build credit, it’s important to demonstrate a history of responsible borrowing. You can make steady progress by focusing on the factors that most affect your credit.

Make payments on time

The best way to improve your credit is by making on-time payments. Your payment history makes up 35 percent of your credit score. Even one or two missed payments can significantly damage your score.

Paying on time helps avoid late fees, additional interest charges and APR increases. It also establishes a history of financial responsibility, which can positively impact your score.

Keep your credit utilization low

Your credit utilization is the ratio of your total credit to your total debt. For example, if you have a $1,000 credit limit and a $100 balance on your credit card, your credit utilization would be 10%.

Borrowers should aim to keep their credit utilization below 30%. Less than 10% is ideal. The lower your credit utilization ratio, the less risky your borrowing profile looks to lenders.

Maintain the age and mix of your accounts

Lenders rely on your credit history to see what kind of borrower you are.

Your credit history functions like a report card. A lengthy and diverse credit history with a record of regular on-time payments is one of the best ways to demonstrate a history of financial responsibility to lenders.

Keeping old accounts open for as long as possible is often a good idea — even if you no longer use a particular card.

The bottom line

While credit cards are some of the most common credit-building tools, they’re not the only option. Borrowers who can’t open a credit card and those who simply don’t want to use a credit card can take several approaches to improving their credit.

Over time, you can build a strong credit history, add more credit and open new financial doors.

Frequently asked questions

  • One of the most significant factors that can negatively affect your score is missing or making late payments. Carrying a high debt balance, which often results in a high credit utilization ratio, also hurts your credit.
  • Improving your credit is a gradual process that can take months or even years. That said, some moves have a more immediate impact.

    First and foremost, make on-time monthly payments. Review your credit report and report any errors that may lower your score, or use a credit repair company. Finally, pay off excess debt on your credit card to lower your credit utilization.
  • Even if you’ve never had a credit card in your name, you may still have a credit history.

    Other types of financial products, such as student loans, auto loans, and personal loans, are also included on your credit report. You may also have an existing credit history if you’ve been added as an authorized user on someone else’s credit card.