How to Build Credit (Even If You Don’t Have a Credit Card)

Whether you're starting from scratch or correcting past mistakes, the way to build credit is to demonstrate your trustworthiness to credit card companies.

Contributing Writer at Tally

So, you want a credit card.

Most people you know have one, and a credit card seems like it would be helpful. You also know a credit card is a good way to build credit for your future. Plus, the card you have your eye on comes with some nice perks.

But to get a credit card, you need good credit. So, how do you build credit without a credit card?

Whether starting from scratch at a young age or rebuilding credit later in life, many people face this challenge. But there are other ways to build credit.

Building credit is about demonstrating your trustworthiness to credit card companies. If you’re just starting out, show them you’re up to speed on the basics and ready to grow. If you’re rebounding from past mistakes, show them how you’ve changed and what you’re doing to improve.

Give credit card companies reasons to say, “Yes.”

Don’t be afraid to ask for help.

If you have someone in your life who trusts you to make responsible decisions with their money, you can utilize your network to build credit and set yourself up for the future.

These two options are often paired with family members or close friends. Just remember they require having a serious discussion about money and responsibilities.

1. Become an authorized user.

If you know someone who’s willing to help, the easiest option is to become an authorized user on their credit card. That allows you to use their card as if it were your own and develop a credit history.

But it’s not always an easy decision. Making you an authorized user takes a great deal of trust from the other person because they’re responsible for any and all of the charges you put on the card.

Start by confirming the credit card you want to become an authorized user on reports your activity to the credit bureaus. If it does, you’re good to go.

The key to becoming an authorized user is trust. But instead of building trust with credit agencies, you’re doing it with the person who adds you to their account.

Over time, this will show credit card companies that you’re worthy of a credit card.

2. Add a co-signer.

This is similar to becoming an authorized user, except you’re adding your co-signer to a new credit card — and both of you are responsible for the charges on the card.

Again, you need to find someone who trusts you. Start with a discussion about how much you intend to spend every month and how you plan to pay off the card.

With responsible spending and on-time payments in full, you should be able to build enough credit to get your own credit card. But any mistakes along the way — if either of you you are unable to pay off your charges — will cause both of your credit scores to take a hit. And that will make it even harder to build credit going forward.

Find tools that work for you.

Not everyone has a network to help them build credit. If that’s the case, don’t worry. There are plenty of other proven options available.

Start with the bank you already use. Check for entry-level credit cards that don’t charge an annual fee. Cards with high interest rates may be hard to avoid, so paying off your balance every month is important.

1. Apply for a secured credit card.

A secured credit card is like most other credit cards. You can use it to make purchases, you have a due date to pay by and you get hit with interest fees if you carry a balance from one month to the next.

But to get a secured credit card, you have to make an upfront cash deposit. And your deposit is essentially your credit limit.

Secured credit cards are often easy to attain because you’re already putting cash up front. The creditor uses the deposit as collateral in case you don’t make payments. You get your money back when you close the account.

Secured credit cards are good for building credit, but aren’t shouldn’t be seen as a long-term solution. Remember to confirm that the card you get reports your activity to the credit bureaus.

2. Consider a credit-builder loan.

A credit-builder loan is another way to build credit, but it won’t actually give you access to the money until it’s paid off entirely.

With a credit-builder loan, the money you agree to borrow is put in a bank account controlled by the lender. Every month, you’re responsible for making payments on the loan. Thos payments are reported to the credit bureaus, which is how you build credit.

Once the loan is paid off, you get all of the money from the account.

This option is best for people who want to build credit and develop good money habits. But it can backfire if you fall behind on loan payments.

Develop healthy habits.

Building credit is more than just having a credit card. It requires consistent behavior and responsible money management. Here are a few strategies that can help boost your credit.

1. Pay on time.

Paying your credit card bill on time is a good habit in general, but it’s even more important if you’re looking to build credit. If you don’t have a history of making on-time payments, a late credit card payment will have an even larger impact on your credit score.

This strategy is valuable for all bills — not just credit cards. This includes things like rent, utilities, car payments and phone bills; all of these can affect your credit report.

If your bill goes to collection, your score will take a hit. And having bad credit is worse than having no credit.

2. Minimize credit utilization.

Your credit utilization is how much your balance is relative to your credit limit. It’s crucial to keep your credit utilization as low as possible while you’re in the process of building credit.

An easy way to achieve this: Pay your balance in full each billing period. If that isn’t possible, ensure your utilization never goes over 30%. To make it an easier task, be careful to not spend more than you can afford.

If you are finding it hard to stay under that 30% threshold, make several smaller payments a month instead of waiting until the due date. Doing this will help you keep things under control no matter when your creditor reports to the credit-tracking bureaus.

3. Check credit reports.

Checking your credit report is the key to knowing how you’re doing at building credit.

You may also find errors on your credit report that can be damaging. And when you do that, you can address them and get it fixed. If you don’t fix an error, it may limit your opportunities in the future.

Checking your credit reports will also allow you to keep your accounts open longer, which is good for building credit. So if your credit card doesn’t come with an annual fee, consider maintaining the account and make sure nothing weird shows up on your report.

You’re entitled to a free credit report from each bureau (Equifax, Experian and TransUnion) once a year.

Bottom line: You can build credit in many different ways. Find what works for you, and focus on  building good habits early when you don’t already have a demonstrated ability to pay on time.