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Not having a credit card can be a smart idea if you have poor credit.
If you’re just paying the interest, it can take years to get out of debt. If you’re not making any payments at all, your credit score can drop fast.
But sooner or later, you’ll probably want to improve your credit score. A common perception is that you can’t build credit without a credit card. There are a number of ways to build and maintain your credit without a credit card to show that you pay your bills on time and can manage your money. Here are a few of the ways:
Credit Builder Loans
These loans let you experience credit handling without the need to take credit or a loan. This can also be thought of as a low risk credit loan to yourself.
You take a loan on an account for any savings you may have, and put the savings into an interest bearing account. You can then simply borrow and pay against that line of credit, using your deposit as collateral.
You may be charged a higher interest rate than you’re earning, but think of paying the difference as an investment because you’ll be getting the experience of working with credit and it will show up on your report to improve your score. A quick Google search will pull up banks all over that offer these kinds of loans.
In many credit and rental histories, on-time rent payments aren’t considered in calculating the credit score. That really put renters at a disadvantage because that's one major payment being made each month that counts towards nothing as far as your credit report is considered.
Experian, one of the major credit bureaus, teamed up with RentBureau to allow renters to opt-in to have their on-time payments added to their credit report. Rental tradelines are not used by FICO, but they are included in the Vantage scoring model. If you suddenly hit a hard spot and won't be able to make your rental payments on time, you always have the option to opt-out of the program. Experian is currently working with the company WilliamPaid, but there are other options available for you.
PRBC, or Payment Reporting Builds Credit, is a company that allows consumers to report their monthly payments like rent, utilities, water bill, electricity, gas, Internet, rent-to-own purchases, and other bills so it can factor into their credit score.
PRBC is free, but not all self-reporting third parties are free to use. This could be a good service if you pay your bills on time every time. If you don’t, self-reporting that you’re late with bills could make it more difficult to get credit.
Get Help from a Household Bill
A phone, internet or utility bill that’s paid late will often only show up on a credit report if a bill collector is hounding you. If you’re paying the bill on time, it likely won’t be reported, though some service providers are starting to report all payments to credit bureaus.
Call your utility company, for example, to see if they report your on-time payments. If not, they should be able to give you a letter of reference if your account is in good standing. The letter won’t help your credit, but you can give it to a loan officer or landlord who might accept it as at least some proof that you’re a good credit risk.
There are a number of other ways to build credit, such as maintaining a steady job, having bank accounts and keeping good relations with the bank, and checking for credit errors.
The most important tactic for any of these methods to work is to pay all of your bills on time -Or get a loan and pay back the debt on time. Having a long and spotless credit history will boost your score like nothing else.
Aaron Crowe is a freelance journalist who specializes in personal finance writing.
*Editorial Note: This content is not provided or commissioned by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.