Can You Build A Credit History Without Credit Cards?

Sep 10, 2014

I figure a lot of Millenials are scratching their heads now.  We know almost 2/3 of them don’t have credit cards, which traditionally has been the way to build credit.  So, what if they do want to borrow someday, say to buy a house or a new car, how can they start establishing their credit history.  I scanned a half dozen articles and here is what I discovered:

  • Student loans:  From LIfehacker:  “one way to start beefing up your credit report once you’re out is to pay down those loans, on-time, every month.”  I argue that students should make interest payments while they are in college.  Monthly costs are low and will keep their loan balances down once they graduate.  
  • Piggyback on your parents and become authorized user on their credit card (again from Lifehacker):  “This trick only really works if your parents have good credit themselves. If they do, you can borrow on theirs a bit by letting them add you as an authorized user to one or two of their credit cards. If they practice good credit habits, like paying off their cards every month, avoiding standing balances unless they absolutely have to, and keeping a low debt-to-income ratio, then you’ll benefit from their good behavior as well.”
  • Jump through some hoops to get your rent payments factored into your credit report (US News and World Report):  “Things are slowly changing, however. Since 2011, Experian has included rent payments in consumers’ credit histories. But it isn’t automatic. If you want your rent payments to be included, you need to be proactive and opt in.  There are a number of websites that will send rental-payment information to the credit bureaus, but according to CEO Jeff Golding, his site is the only one that has an official partnership with one of them: Experian. Consumers who visit can register and pay their rent through the site, and it’ll be reported to Experian (it’s free if you opt for electronic withdrawal; if you pay with a credit card or debit, it’s 2.95 percent of the total payment; if you pay in cash, a $10 flat fee).
  • Get a credit builder loan (US News):  “Ulzheimer says credit builder loans are typically extended by credit unions, precisely to help members build or rebuild credit reports and credit scores. Some community banks also offer them.  “The loan is approved for some small amount, normally not much more than $1,000,” Ulzheimer says. “But instead of the consumer getting that $1,000 like they would with a normal loan, the money is placed into an interest-bearing account with the credit union. The consumer makes payments monthly, and after a year or two, the loan is paid off, and the funds, plus interest, are released to the consumer.”
  • Get a secured credit card (LearnVest), ok seems like a cheat since I said without credit cards but this a different kind of card as the description makes clear:  “Not to be confused with a prepaid card, a secured card is guaranteed by cash that you deposit, so it doesn’t present the opportunity for consumer debt that a regular card might. You use a secured credit card like any other credit card—you make purchases and then pay the bill when it arrives. Your credit limit is the amount of collateral (cash) deposited on the account. You don’t spend that balance down-—rather, it stays in the bank, and you must pay for your charges each month like you would with any other credit card.”
  • Find out if your utility, internet provider or cell phone company are reporting to the credit bureaus (LearnVest):  “In general, utility, internet and phone service providers only show up on your credit report if the account is in collections … which doesn’t exactly reflect well on the borrower. This is starting to change, though—some major providers report all payments. Call your providers to find out if they do. Even if they don’t, most are happy to provide a letter of reference upon request for an account holder in good standing.”

Hope these help provide some ideas to establishing a credit history without credit cards.  Good luck!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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