How to Build Credit Without a Credit Card: Steps to Get Started

We know that good credit brings lots of benefits — for instance, it can help you qualify for a lower interest rate on a loan. On the flip side, bad credit sets you back in many ways, including having to put down a larger security deposit for an apartment. In fact, did you know a poor credit history can even be an obstacle for a new job?

But it can feel like building credit is a catch-22: You need a credit history to qualify for a loan, but you need a loan to have a credit history. It’s kind of like needing experience for an entry-level job, but how do you get that experience in the first place if you’re never given the opportunity? Spoiler: The Arro Card is one of the only credit cards that doesn’t require a credit history for approval at a low interest rate.

Aside from this option, let’s talk about how to build credit without a credit card through other credit-building methods to achieve a good credit score. You may already be well on your way to building credit and not realize it! 

Can I Get a Credit Score Without a Credit Card?

Long story short: Yes, as long as you have a credit history. Odds are that you do have a credit history, although you might not think of it that way. While a credit score is a three-digit number that’s calculated based on a variety of factors, your overall credit history may include your rent payments, utility payments, auto loans, or federal student loans. Experian Boost, offered by one of the major credit bureaus, lets consumers who have been making on-time payments for rent, utilities, and even streaming services add those payments in their credit file.

One thing you won’t find in your credit report: debit card transactions. Many people wonder if using a debit card can help them build credit, but unfortunately the answer is no. You’re spending your own money when you use a debit card, and you have to become a borrower to build credit.

How to Build Credit Without a Credit Card

Whether you’re new to the world of credit and need to build it or if you have bad credit and want to build it back up, there are steps you can take to do so without using a credit card.

Lenders like to see a mix of types of loans in your credit history, even if you don’t have a credit card. They want to know if you can manage various types of debt. Overall, the key thing to demonstrate is that you’re using credit responsibly. 

Let’s look at the ways so you can see which ones might work best for your credit-building journey. Remember that no matter what method you choose, it’s crucial to make on-time payments — nothing can ding your credit score as much as not making payments by the due date.

Installment Loans

When it comes to financing, these agreements mean you borrow a certain amount of money and then pay it back monthly with fixed loan payments (including interest) over a set period of time. 

Installment loans include:

• Car loans

• Student loans

• Personal loans

• Mortgages

If you already have one or more of these loans, you’re well on your way to building credit without a credit card. 

Pro: You can finance many large purchases with an installment loan.

Con: The loan could come with a high interest rate.

Credit Builder Loans

This type of installment loan is designed for one purpose: It helps you create a credit history. The lender places the loan amount in a savings account. Over the next several months, you make monthly payments, including interest. When the loan term is over, you receive the balance. It’s a win-win because you build savings and credit at the same time.

Pro: You’ll have a savings nest egg after you pay off the loan.

Con: They’re not recommended if you have a lot of existing debt.

Authorized User

One of the quickest ways to build credit is to become an authorized user on someone else’s credit card account. It’s a little bit of a loophole since a credit card is still involved, but it’s not yours. Instead, the primary cardholder can add you to theirs — which means you can make purchases — but they’re still responsible for paying the credit card bill. As an authorized user, the account is part of your credit report.

Of course, there needs to be mutual trust between you and someone who allows you to become an authorized user. Young people often rely on their parents or another family member. 

Keep in mind that an authorized user isn’t the same as a co-signer for a credit card. With a co-signer, if the primary cardholder doesn’t pay the credit card bill, the co-signer becomes responsible.

Pro: It’s a hands-off way to build your credit.

Con: It can hurt your credit score if the primary cardholder doesn’t pay the bill on time.

Secured Credit Cards 

Another fast way to build credit is with a secured credit card. An unsecured credit card doesn’t require collateral, but that’s not the case with a secured credit card. For this line of credit, you have to provide an upfront refundable security deposit equal to your credit limit when opening the account. In the event that you fail to make payments, the security deposit covers your debt.

A secured card is a good way for beginners to build credit or for those with bad credit to boost their credit score. Most financial institutions offer secured credit cards. Check out your local credit union, which may offer better deals than banks. Some secured credit cards charge an annual fee, while others don’t. As with everything else, it pays to shop around!

Pro: Sometimes there’s a potential to earn rewards like cash back.

Con: You’ll need to have a lump sum of money for collateral.

Rent Reporting

As we mentioned earlier, rent payments can be part of your credit report. Landlords aren’t required to report this information to credit bureaus, but you can ask if they’d be willing to. There are rent reporting services they can use, or you can enlist one yourself.

Pro: You can build credit with something you’re already doing.

Con: Some services charge a fee.

What Is a Good Credit Score?

Now that we’ve covered how to build credit without a credit card, let’s talk about the goal you’re actually working toward. Whether you need to build your score quickly for an urgent purchase or you’re preparing yourself for an unknown purchase in the future, improving your credit score takes time — so starting now is key. 

Credit Score Ranges

So how do I know if my credit score is good, fair, or poor?

A high FICO credit score shows good credit management, including positive payment history. A low FICO score indicates to lenders that repayment is a problem. The good news is you can use the tactics we described above to help boost your credit score if it’s less than stellar — or even nonexistent.

Credit scores range from 300 to 850. Here’s how they rank:

• Scores below 579 are considered poor.

• Those ranging between 580 and 669 are considered fair.

• Good credit scores range from 670 to 739.

• Very good scores run from 740 to 799.

• Credit scores topping 800 are excellent.

Checking Your Credit Report

To keep tabs on your progress, take advantage of the free credit report provided annually by each of the three major credit bureaus: Equifax, Experian, and TransUnion. 

Your credit profile contains information about your identity, payment history, hard inquiries, credit utilization, and public records filings — which might include tax liens, personal bankruptcy, or court judgments. Any negative activity remains on file for seven years, with the exception of bankruptcy, which remains in your credit profile for a decade.

If you spot any mistakes on your credit history, it’s important to contact the creditor and the credit bureau to correct them.

Common credit report errors include:

• Similar names on accounts

• Identity issues — wrong name, address, phone number, or birth date

• Accounts erroneously reported as late or delinquent

• Closed accounts reported open

• Duplicate debts

• Wrong current balance or credit limit 

Start Building Your Credit History

Now that you know how to build credit without a credit card, it’s time to put a plan into action. If you’re already paying off student loans, making rent payments, or paying utility bills, you’ve been building a credit history. 

It’s up to you to decide whether becoming an authorized user, obtaining a credit-building loan, or putting a cash deposit on a secured card is the best alternative to using a credit card. The good news is that any of these methods can put you on the road to establishing credit and a good credit history. Just remember to stay financially disciplined; any late payments can set back your progress and lower your credit score.

Build Your Credit With Arro

At Arro, we offer a new way to build credit. Unlike other credit cards, you don’t need a credit history to apply, there’s no hard inquiry on your credit, and everyone starts at a low interest rate. All you need is your bank account and Social Security number to see if you qualify for an Arro Card.