How Do I Build Credit Without a Credit Card?

Dear Lifehacker,
I've just finished school, never had a credit card, and don't really want one. My friends say, however, that I need to have and use a credit card to build credit before anyone will trust me with a car or home loan. I've managed my finances pretty well up to this point, but how can I go about building credit without ever owning credit cards?

No Debt for Credit

Photo remixed from an original by Cheon Fong Liew.


Dear No Debt for Credit,
Congratulations! Not just on getting through school successfully, but for also managing your finances well and avoiding the temptation of high-interest credit cards that are all too often dangled in front of college students as the worry-free path to all of the things you ever wanted. Your question is a good one though: many people believe that the only way to build credit is to own, use, and maintain a credit card. Although that is one way to build credit, it's not the only way. Here are some tips to help you get moving on the path to good credit, without putting yourself in debt to get it.

How Do I Build Credit Without a Credit Card?

Check Your Credit Report Anyway

The first thing you should do is check your credit report and see what's on file. You're entitled by law to a free credit report at every year, so take advantage and see what the credit agencies have on you already. If you have a number of savings accounts and bank accounts, they're likely already in your report. If you have student loans from your college years, they're probably on file too, and one way to start beefing up your credit report once you're out is to pay down those loans, on-time, every month. If you're willing, pay a little extra and get your current credit score from one or each of the bureaus—you may be in good shape already and just not know it because you're assuming credit cards = credit score, which isn't always the case.


Move Out, Find a Place Of Your Own, and Pay Your Bills On Time

In addition to having solid bank accounts and paying down your student loans, another good way to build credit is to pay your bills, on time and in full every month. Utilities, cell phone bills, anything that may otherwise be referred to a credit bureau if it's not paid in a timely manner. Paying those bills on time will also have a positive impact on your credit score. They may not be directly shown on your credit report, but you are proving that you're capable of handling regular expenses without difficulty and without being late on them. Avoid letting your bills slip to the point where you're referred to a collections agency—that's when you'll get into trouble.

How Do I Build Credit Without a Credit Card?

Sign On as an Authorized User to Your Parents' Cards

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. It's a technique called "Piggybacking," and while it's controversial, FICO allows it specifically as a tool for children to build credit while benefiting from their parents' healthy credit habits (or learning their own under the watchful gaze of their parents) and for spouses where one partner is trying to repair or grow their credit and the other's credit is already in a good place.

Photo by silver-john/Shutterstock.

Open an Account at a Credit Union, and Finance Through Them

We've discussed why you should choose a credit union instead of a bank before, and even walked you through switching to a credit union and leaving your bank behind if you're ready to make the leap, but when it comes to your credit score, credit unions look for more than just your lending history and your FICO score when determining whether you're a credible borrower. If you're interested in financing a car, or even buying your own home, and you don't have a ton of revolving credit to your name, you'll be best served by finding and opening an account at a credit union, and then asking them for the loan. Pay it off on time every month like any good installment loan, and your regular payments and good fiscal habits will translate into a higher credit score, and make you eligible for lower-interest financing on other things like home improvement loans, future mortgages, small business loans, and other borrowing needs in the future.

How Do I Build Credit Without a Credit Card?

Optional: Consider a Credit Card Anyway

There are generally two schools of thought on credit cards. The first is that credit cards are the pinnacle of evil and that no one should ever own them, use them, or buy anything on credit or through financing, no matter what, and that all of your purchases should be cash. The second is that credit cards are a financial tool, and that even though the system is set up to entice you to go into debt, in the end it's you who swipes credit instead of debit and you who pays off the bill every month or lets it linger with a standing balance.

Consider which camp you fall into, and act accordingly. If you're in the latter, you may be able to effectively manage a credit card, and even reap the benefits of a great rewards card. If you do opt for a credit card, we suggest getting one with rewards that are right for you, or even getting one issued by your credit union. Considering you've been financially responsible up to this point, it sounds like may be able to handle owning a credit card and using it responsibly. Photo by Shawn Rossi.


P.S. Do you have any other credit building tips for No Debt for Credit that he can use to build his credit score and credit history without necessarily signing up for the first pre-approved credit card offer that graces his mailbox? Share your tips in the comments below.
