How to Build Credit Without a Credit Card

Published on March 26th, 2019 by CreditFresh

A person looking distressed while staring at pile of credit cards in front of him

Why does a lack of credit always have to feel like a lack of options? You want these struggles to end as soon as possible, as your damaged (or no) credit keeps you from getting the home you want to own, the car you want to drive, or the life you want to live.

A lack of good credit can make life harder. You’re seen as a high risk by a lender, which means you’re often paying a much higher interest rate on things like a car lease. You could be paying BMW prices for a Honda Civic.

You may not be able to get a credit card, which leads to frustration whenever you try to do something that “everyone else” gets to do, like renting a car, booking a hotel room, or buying something online. You may ask, “When will this end? When can I just start living like everyone else, and getting everything they have access to?”

The good news is that there are ways to systematically build your credit rating. Here’s how to do it the right way and work towards the life you want to live.

Can You Build Credit Without A Credit Card?

Graphic image of a credit card being cut by a pair scissors

Yes, you absolutely can build your credit without a credit card, even though it seems like an awful never-ending cycle:

  • You have no/damaged credit, so…
  • You can’t get a credit card, but…
  • You can’t build your credit, because…
  • Return to point #1

Rest assured, there are ways to build your credit without a credit card, as bleak as it may look right now. You simply have to be a bit more diligent and methodical in your approach.

Credit building is not achieved using tricks, hacks or shortcuts. You need to rely on proven and reliable methods of building your credit rating, efficiently and incrementally. You can’t fix things overnight, but if you can start doing the right things right now, your actions may start to pay off sooner than you may expect.

Note: Please remember that no single one of the things we’re about to discuss will build your credit score by itself. Your credit score is extremely dynamic and complex, so you need to do a series of right things to build it, not just one good thing.

Find and Dispute Any Errors In Your Credit History

Credit Report on a clipboard with a pen

If you have no credit or no credit history, you can skip this step.

However, if you’re rebuilding damaged credit, one of your first steps should be to ensure that your credit report is completely accurate. What if your credit standing is being punished for something you didn’t do, or a debt you don’t actually owe?

It happens more often than you might think. In fact, it’s been reported that about 1 in 5 people have found mistakes on their credit report.

This means that the credit histories for roughly 1 in 5 people are evaluated incorrectly by lenders. These people could be unknowingly paying more than they should for interest rates on their car or home. These errors could also cost them the ability to get a home or car in the first place.

So, make sure everything on your report is accurate. And if it’s not, make sure you dispute it. How do you dispute something in your credit report? Follow the steps listed here. It can take 1-6 months, so the sooner you start, the better.

Stay on Top of Payment Schedules

We cannot stress the importance of this step enough, because late payments will undo your progress. This is the foundation of your credit score. When you’re rebuilding your credit, you need to take extreme care to make sure you’re paying all of your bills on time.

Do whatever it takes - write them all down, with the average amounts and their due dates, and then put them on a calendar. Some people prefer to put alerts and reminders on their phones, while other people still prefer sticky notes and pens. Find out what works for you and stick to it. This is priority #1 in building your credit.

Graphic image of a hand putting money in an envelope with an invoice sticking out

Does Paying My Rent Help My Credit Score?

This is a very popular question with a rather unpopular answer. The reality is that in most cases, no, your rent payments are not reported to credit agencies, so they do not help your credit standing.

This is especially true if you are renting a room, basement, or house and pay your landlord in cash or e-transfer every month. There may not be much of a paper trail and nothing gets sent to a credit bureau. In fact, less than 1% of FICO credit reports contain rent information. But this doesn’t have to be the case.

Your rent is more than likely your biggest expense, and when you are building credit, you should be rewarded for paying it on time. Fortunately, there are third-party rent reporting services that can let credit bureaus know that you’re paying your rent on time every month to incrementally help your credit score.

These services include:

  • Rent Reporters: A one-time enrolment fee of $94.95, and the service is $9.95 per month. They report to TransUnion and Equifax.
  • Rental Kharma: Enrollment is $25, and the service is $6.95 per month. It reports to TransUnion.
  • RentTrack: Their fees are lower if your landlord is a client. Without landlord participation, there is a $6.95 fee, but they report to all three major credit bureaus.
  • Rock the Score: An enrolment fee of $25, and $8.95 per month after that. It reports to TransUnion and Equifax.

Does Paying a Phone Bill Help Build Credit?

This is another very popular question, without an easy answer. In broad strokes:

  1. Paying your bills on time is always a good thing. This is true for any bill.
  2. Some cell phone companies and utility companies report your activities to credit bureaus, but most of them do not. So, making your payments on time may not help your score, per se, but…
  3. Late payments and collections are far more likely to be reported and hurt your credit rating. Paying on time is the best way to avoid that damage.

You may also ask, “Does financing a phone build credit?” After all, they probably looked at your credit when you bought the phone and set up your plan, so they must report your payments, right?

This is the same answer as above: likely no. However, don’t take any chances, because late payments can hurt you far more than timely payments can help you.

One Way That Paying Your Bills May Help Build Credit

There is one way to pay your bills that may give you the opportunity to positively impact your credit rating more effectively than the previously mentioned methods: Paying your bills using a line of credit, or a secured credit card.

Certain line of credit providers, such as a CreditFresh Line of Credit By CBW, report your payments to credit agencies, in the same manner as major credit card companies.

The strategy here is to make your bill payments using your line of credit or your secured credit card. Then, pay down the balance as quickly as possible using your checking account.

This could help you in 3 ways:

  1. Your bills will be paid on time and you’re avoiding any penalties from that area
  2. Your regular payments will be reported to credit agencies, which may help build your credit
  3. This may also buy you a few more days to have the money to pay for the bills

The crucial part here is paying down the balance as quickly as possible. Putting an entire month’s worth of bills on your credit card or line of credit and then letting that build and accumulate isn’t helpful.

Credit agencies want to see that you are making regular payments and you are keeping a low balance, so make sure to stay on top of this.

What About Credit Building Loans or Lines of Credit?

Someone planted money in soil hoping for it to grow

We just talked about one area where a line of credit may help you rebuild your credit. But, it can also act as a safety net for surprise expenses. One of the key challenges you face when building your credit is making payments on time with a limited or unpredictable income.

Let’s say you have been working hard to be frugal and do all the right things for a couple of months to build your credit. But, one day, you get in a car accident and you’re now facing $2500 in repairs.

You don’t have much money saved, so you may make the decision to pay a few bills late in order to pay for the more urgent car repairs. Those late payments can undo all of the work you’ve done for the last couple of months. It’s incredibly frustrating and you may start to feel like the whole world is against you.

This is why it may be very helpful to have some sort of safety net in place during the process of trying to build your credit. However, the success of this approach relies on 3 absolutely crucial things:

  1. You make all of your line of credit payments on time (or early)
  2. You pay down the balance as quickly as possible
  3. You still live within your means and don’t put things you cannot afford on your line of credit

Failing to do any of those 3 things is likely to hurt your credit score and undo any of the good work you’ve done elsewhere.

Can an Authorized User Status Help Build My Credit?

This is a popular option among people who need to know:

  • How to build credit without a credit card
  • How to start building credit at 18 or younger
  • How to build credit when you’re new to the country

How does it work? Basically, you’re added to another person’s credit card as an authorized user. You receive your own credit card with your name on it and you’re free to use it as normal.

You are not under any legal obligation to make the payments or pay the balance down. That, strictly speaking, is up to the main cardholder. However, if you’re using it and accumulating any sort of balance, there clearly needs to be some sort of agreement in place with the main cardholder.

This may give someone with no credit “some” credit history as they’re starting out. However, the impact on your credit score is relatively minor.

If you’re rebuilding your credit, the key benefit here may be to once again have plastic in your pocket. When you don’t have a credit card, you can’t do things like rent a car or hotel rooms. It may feel good to have those options again. However, if you’re looking to rebuild your score quickly, trying the methods we’ve listed above may help move the needle forward and in the right direction more effectively.

We would like to stress again that building your credit takes time and there are not quick fixes or shortcuts. However, if you build good habits and do the right things, you will be rewarded.

Looking for a Line of Credit to Help Rebuild Credit?

A CreditFresh Line of Credit by CBW may be able to help. As we mentioned above, it can act as a safety net and help you restore your credit with regular payments. Our process is quick, and completely transparent, with no hidden fees.

You may receive a personal line of credit from $500 - $2,500. The application process will not negatively impact your credit report, and you can click here to get started.