Unless you have enough money to finance your entire life, you will probably need credit at some point. Whether you need to get a mortgage to buy a house, take out a car loan or borrow money to start a business, a good credit score will help you get better rates.
But a good credit score isn’t always easy. If you have bad credit, it often takes some time and effort to fix it. Meanwhile, having no credit at all is almost a bigger hurdle. Why? Because lenders are particularly fickle about lending money to someone whose ability to repay is still unproven.
Yet everyone starts with the same clean slate when it comes to credit. And while using a credit card responsibly is a great way to build or improve your credit, it’s far from the only method that works.
Here are five ways to build your credit history and improve your score without getting a credit card:
Option #1: Take out a small loan from your bank or credit union
If you have a healthy relationship with a local bank or credit union, first check with them whether you meet the criteria for a small personal loan. If you do, borrow as much as you need for a major purchase you planned to make anyway — or a small amount that you know you can repay over time.
Once you have taken out a small installment loan, you must prioritize the repayment. This type of loan is probably the best way to help you build credit or improve your credit score, but only if you make your monthly payment on time every time.
Option #2: Ask to be someone’s authorized user
If you have a close relationship with someone with good or excellent credit, you can always ask them to add you to their account as an authorized user. If you can make it work, your credit score will benefit from their monthly purchases and payments, even if you don’t transact many yourself.
Also: Authorized Users vs. Joint Accounts: What’s the Difference?
Remember that the flip side is also true. If you become an authorized user and the account holder defaults for whatever reason, your credit score can suffer greatly. Therefore, this strategy would probably work best with a family member or close friend you trust.
Option 3: Consider getting a federal student loan
You could always consider taking out a federal student loan if you are a student. Since a credit check is not required for this type of loan, you can get one without an established credit history.
Federal student loans are considered installment loans, so paying your bills in full and on time can also help you build a credit history over time. Make sure to borrow only what you need – and what you know you can repay.
Also: A single parent’s financial guide to going back to school
Option #4: Take out a peer-to-peer loan
If you cannot borrow money from your bank or credit union, you can always try a peer-to-peer loan through a P2P lending company such as Prosper or Lending Club.
While these loans offer higher interest rates for borrowers with short credit histories or low credit scores, the fact that they report to the three major credit reporting agencies means that timely payments can build your credit score over time. Just make sure you don’t borrow more money than you need or waste it on unnecessary purchases.
Option #5: Report your rent yourself
While paying rent to a private landlord doesn’t usually improve your credit, there are ways to make your rent count every month. According to credit reporting agency Experian, you should start by contacting your rental company or landlord to see if they report timely rent payments to the three credit reporting agencies.
If not, you can sign up yourself through a rental payment service that partners with the credit bureaus, such as Experian RentBureau. Other options include sites like ClearNow.com, RentTrack.com, or PayYourRent.com. These sites, and other similar sites, process your rent payment electronically and report your payment history to the three credit reporting bureaus for an additional fee.
Improve your credit score step by step
If you can make any of these options work, you should be on your way to an improved score in no time. Remember, it’s important to take the process seriously and pay all your bills on time each month – no matter what.
While it’s true that a whole bunch of on-time payments can help boost your score, it’s also true that just a few late payments can completely destroy your progress. And when it comes to building credit or improving your credit, the last thing you need is one more mountain to climb.
[This article was first published on The Simple Dollar in 2020. It was updated in March, 2022.]