There were about 375 million total active credit card accounts in the U.S in 2019.. This is more than one credit card per every citizen.
While credit cards are clearly a popular type of debt, they’re not right for everyone. It’s easy for credit card balances to balloon out of control, as they come with high interest rates and only require a small minimum payment each month.
With that in mind, here are some ideas for building a credit history without credit cards.
Become an Authorized User
Becoming an authorized user on an existing credit account is a way to potentially build credit without having your own account. As an authorized user, you’ll get a card and are added to the account of another person—typically someone related to you.
The length of your credit history, as well as your ability to pay down your bills, factor into being an authorized user. It’s important to note, however, you shouldn’t treat this like a free ride. The money you put on your card as an authorized user is the responsibility of the account holder. Racking up a huge bill and then not paying it will almost certainly strain your relationship.
Look at Alternative Forms of Loans
These are a couple other kinds of loans you can consider:
Credit Builder Loan: This has the name of what you’re trying to do right in the title. With this type of loan, you’re really not taking out a loan in the traditional sense. Instead, you’re adding money to an account until it reaches the “loan amount,” at which point you get it back. This is a way to build your credit without taking out a loan at all.
Car Loan or Mortgage: It’s important to understand not all kinds of debt are the same. Some kinds are considered much better than others. Car loans and mortgages typically have lower interest rates, are tied to an asset that holds value, and provide an essential good. Taking out a loan for a car or home can be in your best interest as long as you can pay if off.
Furthermore, it might be difficult for you to get a credit card if you already have a rocky credit history. People in this situation can also consider the viability of a debt relief program. A debt relief program can be a great way to get your finances back on track.
A consolidated credit card loan is another way to take existing credit card balances and put them onto one loan with a lower interest rate. This can help build your credit in the long term; especially if you pay the accounts in a timely fashion and keep them out of collections.
Do the Right Things for Your Credit
Beyond opening new lines of credit, there are some other things you should think about when trying to build your credit history. There are a few key factors that determine your creditworthiness to lenders.
Here’s what you need to do to create the right kind of credit history:
♦ Pay Bills When They’re Due: Lenders need to get paid back in order to make money. IF they see you’re reliable on this front, that’s one of the most important ways of leaving the right kind of credit footprint.
♦ Try to Have Utilities Acknowledged: Your bills might not be credit exactly, but paying your phone and other utilities shows a level of commitment and trustworthiness. Some credit agencies now allow you to opt-in to having your utilities counted toward your credit history.
♦ Don’t Take On Too Much Debt: High levels of debt can be harmful on two fronts. For one, credit reporting agencies will see this as a negative. But there’s a good reason for this. Having excessive levels of debt is a liability to your finances, as at some point, the debt will get too great for you to repay it.
♦ Keep an Eye Out for Errors or Fraud: There are all kinds of reasons something inaccurate might end up on your credit report. Mistakes on your credit history will only make things more difficult for you down the line.
Building a credit history is an important part of financial wellbeing in today’s world. Fortunately, there are some options out there for people who want to build their credit without credit cards.
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Without Credit Cards