You have probably come across the age-old question, “how do you build credit without the use of a credit card?”
Building credit as soon as you’re an adult is vital in avoiding financial snags as you move through everyday life. Using credit cards responsibly is one of the more popular ways to begin building credit. However, if you’re against credit cards or prefer not to get one, knowing how to create credit without a credit card is a necessary skill.
Building credit without a credit card is possible, it requires a different approach.
Note that not having a credit card could hold your credit score back; this shows institutions you can be responsible for both credit cards and instalment loans. Not having credit card experience on your credit history won’t cause you to have a poor credit score, but institutions may be hesitant to offer you the best rates/options.
The alternative to using credit cards to build your credit score is to use a loan. 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
The Student Loans Bureau typically grants up to a certain amount as long as you’re enrolled at an eligible institution. You can start repaying your student loans while you’re in college to begin building your credit score. Waiting until you’ve graduated is also an option. Either way, be sure you pay on time each month to build your credit score without a credit card.
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 tricky part is getting approved for either of these without an established credit history. With a steady income and proper down payment, you may be able to get approved. For mortgages, you may be able to get approved for a loan backed by the National Housing Trust and a bank, if you have made NHT contributions and made on-time rental and bill payments.
What has a tremendous impact on your credit score is cosigning for a family or friend. The downside is that cosigning is generally a bad idea. You could be held liable if the person you co signed for defaults on their loan payments. In the days of microloans, getting a loan is relatively easy, so if someone can’t get a loan by themselves, take this as a warning. Also, late payments affect the co signer’s credit just as much as they affect yours.
Pay Your Rent on Time
Your rental payments may help you build a credit history if your landlord reports payments through Rent Board. Although only a portion of landlord’s report this data.
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 upfront payment.
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