How to build a credit score without a credit card

Exploring alternative financial tools to up your credit

Having a healthy credit score can help you in many ways. It could improve your chances of getting approved for a loan. Plus, it could get you a better loan rate. But did you know that it can affect other parts of your life, too? For example, insurance companies may look at your credit score to help determine the rate they’ll offer you. Employers could review it, too, when you’re applying for a job. Even landlords may look at your credit score to help determine if they will rent to you.

In a way, your credit score is an indicator of how responsible you are – a pretty good reason to prioritize your credit.

The credit card conundrum

Right or wrong, the credit card has gained a reputation as the go-to tool for building a credit history. But what if you don’t qualify because you’re just starting out or you have had some challenges that lowered your credit score? What if you simply don’t want a credit card?

The good news is that there are other ways for you to build your credit score without relying on a credit card.

6 ways to boost your credit score

1. Clean up your credit

There are three credit bureaus – Experian, TransUnion, and Equifax. You can request a free copy of your credit report from each for free (once a year). Go through each report to make sure there are no mistakes. If you do find something, you can file a dispute to have the negative information removed (and potentially raise your credit score). Make it a habit to check your credit score regularly and review your credit reports annually.

2. Make your student loan payments

Your student loan is an installment loan in your name. When you are required to make the payments, it’s important to pay on time. The good news is that with each payment, you’re adding to your payment history which can help improve your credit score.

3. Get a phone plan in your name

Some phone companies will report your payment history to the credit bureaus. That means your on-time monthly payments could help boost your score. Check with your phone provider to see if they report your payments.

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4. Consider a personal loan

A personal loan from a bank is a unique installment loan in that there is no collateral required to get the loan. For example, with an auto loan, the car is the collateral. If you don’t make payments, the bank can repossess your car.

A personal loan may be harder to get if you have no or damaged credit. Plus, they typically come with higher interest rates. But it is an installment loan and can help improve your credit score as you make regular payments.

5. Get credit for your other payments

It is possible to get credit for other monthly payments. For example, there are services that will report your rent payments to the credit bureaus, but it has to go through your landlord. So, they have to be willing to help and you’ll have to pay for the service. Even then, there is no guarantee that the credit bureaus’ algorithms will take your rental payments into consideration.

Another option is to use a tool like Experian Boost. It’s free and will take into account monthly payments for utilities, streaming services, and more. It only applies to your Experian credit report - not your TransUnion or Equifax reports - but since it’s free, it’s worth considering.

6. Apply for a Credit Builder Loan

A credit builder loan may be one of the best ways to work on a low credit score because you don’t need a good credit rating to qualify. You apply for a small loan (like $1,000 or $1,500) and the amount borrowed is typically set aside in an interest-earning account. Then you make monthly payments until the loan is paid off. During this time, your bank reports your payments to one or more of the credit bureaus. As you would guess, that helps boost your credit score.

But that’s just half of the story. Since you can’t access that money until you’ve made all your loan payments, you’re also creating a nice chunk of savings. And since the whole amount is stored in an interest-earning account, you’re earning a year or two’s worth of interest! It’s a triple bonus - you’re building credit, creating savings, and earning interest.

Some other things to remember

Your payment history makes up 35% of your credit score. That’s bigger than any other factor. It is crucial to make at least the minimum payment due on all your bills and to pay those bills on time.

Make this a priority along with monitoring your credit score and checking your credit report at least annually. With these tools and a little bit of diligence, you could boost that credit score and enjoy the benefits that follow.

Ready to build your score? Apply for First Federal’s Credit Builder Loan today or contact our consumer lending team for more information.

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