How to Build Credit Without a Credit Card

Woman paying bills

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Building credit as soon as you're an adult is key to avoid snags as you move through everyday life. Using credit cards responsibly is one of the easier ways to begin building credit. However, if you're against credit cards or prefer not to get one, knowing how to build credit without a credit card is a necessary skill. It's possible to build credit without a credit card, you'll just have to take a different approach.

The alternative to using credit cards to build your credit score is to use a loan, particularly one from a lender that reports to at least one of the three major credit bureaus. Your loan payment history must show up on your credit report to help you build your credit score. Some loans are more difficult to get than others, so it helps to know your options.

Start Repaying Your Student Loans

Federal student loans are typically granted up to a certain amount as long as you're enrolled at least part-time in an eligible institution. Depending on the type of loan you have, you may not be required to begin making payments until after you've graduated or you've dropped below half-time. But, you can start building your credit score sooner by making monthly student loan payments while you're still in college. Just be sure your payments are made on time each month since late payments can affect your credit score.

Private student lenders are also an option but are more difficult to get if you don't already have an established credit history and qualified income.

Use a Credit Builder Loan

A credit builder loan is similar to a secured credit card. Once you're approved, the funds from the loan are placed in a savings account or CD until you've repaid the loan. Then, the money in your savings is yours to keep. Your payment history is included in your credit report, so your timely payments will boost your credit score as long as you make all your monthly payments on time and don't default.

Your local credit union may offer a credit builder loan or a similar program to help you start building your credit score. offers an online credit builder loan program that reports your monthly payments to all three credit bureaus. You'll pay an administrative fee to get started, plus you'll pay a small amount of interest on the loan.

Repay a Mortgage or Car Loan

Since both mortgages and car loans report to credit bureaus, either of these will help you build your credit score. The difficult part is getting approved for either of these without an established credit history. With a steady income and good down payment, you may be able to get approved.

For mortgages, you may be able to get approved for a loan backed by the Federal Housing Administration, if you have at least one year of on-time rental payments, timely payments on all your bills, and no accounts in collections other than medical bills.

If you can't qualify for a loan on your own, you may be able to get someone (with good credit) to cosign for you. The downside is that cosigning is generally a bad idea. The person who signs the loan with you can be held liable for the loan payments if, for some reason, you can't make the payments on your own. Late payments affect the cosigner's credit just as much as they affect yours. And, if you ultimately file bankruptcy, the cosigner is on the hook for the entire debt unless they file bankruptcy too.

Pay Your Rent on Time

Rent payments typically aren't included on your credit report, but there are some new services that are working to change this. Your rental payments may help you build a credit history if your landlord reports payments through Experian RentBureau or if you enroll in a third-party service to report rent payments on your behalf.

Alternative Credit Scores

Traditional credit scoring is mostly based on your history of borrowing money through credit cards and loans. It doesn't consider non-credit based payments that you make every month like your utilities, cable, and phone bill. Alternative credit scores, like that from Payment Reporting Build Credit, use non-traditional information to build your credit score. While PRBC gives you the opportunity to show good payment habits, many traditional creditors, lenders, and other businesses still rely on traditional credit scoring information to make decisions about your applications.

What to Watch Out For

Beware of advance-fee loans and other loan scams that prey on people with no credit or bad credit. These loans typically guarantee approval and ask for some type of upfront payment.

Payday loans, title loans, and pawn loans won't help you build your credit score. On the downside, a payday loan or title loan could hurt your credit score if you default and the account is sent to collections. The collection agency would report the delinquency to the credit bureaus, hurting your ability to build a good credit score.

Keep in mind that not having a credit card could hold your credit score back—10% of your credit score is based on the types of accounts you have experience with. Showing you can be responsible for both credit cards and installment loans is best for your credit score. Not having credit card experience on your credit history won't cause you to have a poor credit score. After all, it's only 10% of your credit score.