Unless you have enough money to finance your whole life, you will probably need credit at some point. Whether you need to take out a mortgage to buy a home, take out a car loan, or borrow money to start a business, a good credit score will help you get better rates.
But getting a good credit score isn’t always easy. If you have bad credit, it often takes time and effort to fix it. Meanwhile, having no credit at all is almost no longer a hindrance. Why? Because lenders are particularly fickle when it comes to lending money to someone whose ability to repay is not yet proven.
Yet everyone starts with the same clean slate when it comes to credit. And while responsible credit card use is a great way to increase 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, check with them first to see if you qualify for a small personal loan. If you do, borrow as much as you need for a large purchase you planned to make anyway – or a small amount you know you can repay over time.
Once you’ve secured a small installment loan, you need to make repayment a priority. This type of loan is probably the best way to help you build your 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 are close to someone with good or excellent credit, you can always ask them to add you as an authorized user on their account. If you can make it work, your credit score will benefit from their purchases and monthly payments, even if you don’t do a lot of transactions 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 any reason, your credit score could take a huge hit. Therefore, this strategy would probably work best with a trusted family member or close friend.
Option 3: Consider getting a federal student loan
You can 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 having an established credit history.
Federal student loans are considered installment loans, so paying your bills in full and on time will also help you build a credit history over time. Just be sure to only borrow what you need and know you can repay.
Also: A single parent’s financial guide to going back to school
Option #4: take out a loan between individuals
If you are unable to borrow money from your bank or credit union, you can always try peer-to-peer lending through a P2P lending company like Prosper or Lending Club.
Although these loans offer higher interest rates for borrowers with short credit histories or low credit scores, the fact that they are covered by the three major credit bureaus means that on-time payments can increase your credit rating over time. Just make sure you don’t borrow more money than you need or waste it on unnecessary purchases.
Option #5: Declare your rent yourself
While paying rent to a private landlord usually doesn’t 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 agency or landlord to see if they report timely rent payments to all three credit reporting agencies.
Alternatively, you can register on your own through a rent payment service that works with credit bureaus, such as Experian RentBureau. Other options include sites like ClearNow.com, RentTrack.com or PayYourRent.com. These sites, and others like them, process your rent payment electronically and report your payment history to all three credit reporting agencies for an additional fee.
Improving your credit score, one step at a time
If you can get any of these options to work, you should be well on your way to improving your 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 slew of on-time payments can help your score climb, it’s also true that a few late payments can completely wipe out any progress you’ve made. And when it comes to building or improving your credit, the last thing you need is another mountain to climb.
[This article was first published on The Simple Dollar in 2020. It was updated in March, 2022.]