Building a good credit score is one of the best financial strategies we can develop. Our credit score determines whether we will receive loans that allow us to purchase essential assets like homes or cars. And while credit building is most commonly done through using and paying off a credit card, many other options for building credit exist. Here are five ways you can raise your credit score without ever having to touch a credit card.
1. Report Your Rent Payments to Credit Bureaus
While rent is one of the biggest monthly bills Americans pay, many do not report their monthly installments to credit bureaus. There are a handful of rent reporting services such as RentTrack, RentPayment, and RentReporters, that allows you to pay and report your rent payments to the three major credit bureaus each month. Some of these services will require your landlord to report your payments for you, but some—like RentTrack—allow you to submit payments yourself and will send a check to your landlord on your behalf. The only thing to keep in mind is most services charge a small fee for each monthly entry. However, the extra fee may be worth the ability to build credit through rent payments.
2. Utilize an Authorized User Status
If you have a friend or a family member with a credit card, they can add you as an authorized user of their card. This allows you to use the cardholder’s credit card and earn credit alongside them. And regardless of whether you ever use the card or not, you can still report the owner’s card activity as your own. While this plan may seem foolproof, it does come with high risk. That is, if the account builds up excessive balances and/or misses payments, then all users on the account will have a negative effect on their credit. And it may be difficult or even impossible to remove yourself from the account once you are signed on. Therefore, if you are going to adopt this strategy for yourself, make sure you team up with someone trustworthy enough to be financially responsible for your money and credit score.
3. Take Out a Credit-Builder Loan
A credit-builder loan is, essentially, a loan taken out solely to raise your credit score. Typically, the small loan (less than $10,000) is put into a savings account that is to be paid by the end of the year. Every month, you’ll pay a portion of the amount borrowed and a high interest rate around 10% to 15%. However, at the end of the year, you can unlock your Certificate of Deposit (CD) and take out the cash and interest that accrued. These loans are your best friend for building credit as you choose the amount you want to pay, the time in which you want to pay it and they are easily accessible for those with poor or non-existing credit.
4. Set Up Automatic Payments and Report Your Bills
Just as you can report your rent payments, you can also report your payments on monthly bills such as utilities and cell phone payments. And as your payment history contributes 35% to your overall FICO score, having a history of on-time bill payments can have a significant positive impact on your score if you do not have a lot of other data in your report. You can also save time and stress by automating online bill payments. You can set up recurring payments for almost any online bill pay service, allowing service providers to automatically pull money out of your account. However, you can easily lose track of how much money you are spending when you are not actively paying your bills. And unlike rent payments, utility and service bills cannot be self-reported to credit bureaus. Therefore, you must personally request that your service providers report your bill payments, leaving the decision entirely up to them.
5. Get a Secured Line of Credit
Peer-to-peer loans, or P2P lending, is exactly what it sounds like, one individual lending another individual money with the expectation that the money is paid back over time. However, unlike a loan from the bank, P2P lending does not have to go through a financial institution. That is, a P2P loan requires no prepayment penalty, grants access to cash faster, and offers the lowest interest rates in the country (around 5%). And if paid back on time, P2P lending will raise your credit score, making it a great financial strategy for those who want to avoid using credit cards but want to build credit.