How to establish credit without credit cards

Green background with credit building words

Share this

Credit Sesame with suggestions on how to establish credit without credit cards.

Life is expensive enough without a poor credit history. Without good credit, you may not get the apartment or job you want and borrowing money can be more expensive.

One way to establish credit and a credit score is to open a traditional or unsecured credit card and pay it off in full and on time each month. A traditional credit card does not require a security deposit or collateral and allows the cardholder to make purchases and borrow money up to a predetermined limit.

Securing a traditional credit card may be difficult if your income is low and you have not already established credit. It seems you need credit to get credit, but where to start? Is it possible to establish credit without credit cards?

Pay your bills on time

You don’t have to have a credit card to use this tactic to raise your credit score. Pay your regular bills on time—car loan, rent, utilities, phone, water and others—and make sure they are reported to the credit bureaus. This can help you build payment history, accounting for 35% of a FICO Score.

Get a secured credit card

A secured credit card is technically a credit card, but it works differently from a traditional credit card. With a secured credit card, you provide a security deposit upfront to the credit card issuer, typically equal to the card’s credit limit. This deposit serves as collateral and reduces the risk for the issuer. You can then use the card to make purchases and build credit, just like a traditional credit card.

For example, you deposit $500 in an account tied to the card and get a card with the same credit limit as your deposit. You make payments just like for a traditional card, which are reported to the credit bureaus. If you fail to make repayments, then the card company can withdraw money from your deposit.

After six months or so of using the card responsibly (meaning paying the bill on time), some unsecured card companies offer you an unsecured card and return the deposit to you. Or the deposit amount is returned to you when you close the account.

The new Credit Builder from Credit Sesame is a new kind of credit-building account that allows you to build credit with your everyday purchases and does not require a security deposit.

Open a credit-builder loan

A credit builder loan is a type of loan designed to help you establish or improve your credit scores. Instead of receiving the loan funds upfront, you make monthly payments with interest over a fixed period of time. The lender reports each payment to the credit bureaus, which can help improve your credit score over time. You receive the funds paid into the loan at the end of the loan term.

These loans are meant for people with poor or no credit. Money from the loan is only given to you after you pay off the loan in full. On-time payments are reported to credit agencies, which can be the start of your credit history.

Your loan payments are deposited into a bank account held by the lender, usually a credit union or community bank. You make the monthly payments for six months to two years to pay off the loan, and then you get the loan proceeds.

It may seem to be a counterintuitive way to build a credit history by paying interest on a loan you do not have access to for months or years, but it is designed specifically to establish and build credit.

Get a co-signer on a loan

A co-signer can be added to a credit-builder loan, and one with good credit can help you get a lower interest rate than you would on your own. Other types of loans also allow co-signers and a personal loan may be cheaper than a credit-builder loan.

A loan can be easier to qualify for with a co-signer since their good credit is used to get the loan. And if you repay the bill on time, your credit score should rise.

A co-signer accepts equal responsibility for the loan and is liable for paying it if you fail to pay. If you miss payments or make late payments, you risk damaging your credit score and your co-signer’s credit score.

A parent or relative with a good credit history can be a big help as a co-signer.

Become an authorized user

This is another way to access a traditional credit card without applying for one yourself. An authorized user on a credit card has been granted permission to use someone else’s credit card account. This may be a parent, relative or trusted friend with good credit. It’s like a piggyback ride for improving your credit score.

There is no requirement to use the card, but as an authorized user you benefit from the cardholder’s good credit habits. If you receive the card and used it and fail to make repayments you could damage the cardholder’s credit score.

Repay student loans

Repayment of federal student loans usually begins six months after graduating from college or dropping below half-time enrollment. 

Payments are reported to the credit bureaus, so repaying student loans that are in your name can improve your payment history, which makes up the biggest percentage of a credit score. Missed and late payments could hurt a credit score.

Check your credit scores

Checking your credit score is free and it’s a good idea to check regularly while establishing your credit history. Checking for and correcting mistakes on your credit reports may help improve your score.

If you liked How to establish credit without credit cards, you may also like:

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Aaron Crowe
Aaron Crowe is a freelance journalist who specializes in personal finance topics. He has written for Wise Bread, AOL, AARP, Bankrate and other websites that focus on financial literacy and saving money. He has also worked as a newspaper reporter and editor. You can follow him on Twitter @AaronCrowe.

See your score.
Reach your goals

Begin your financial journey with Credit Sesame today.  Get your FREE credit score in seconds.

By clicking on the button above, you agree to the Credit Sesame Terms of Use and Privacy Policy.

See your score.
Reach your goals.

Begin your financial journey with Credit Sesame today.
Get your FREE credit score in seconds.

By clicking on the button above, you agree to the Credit Sesame Terms of Use and Privacy Policy.

Advertiser Disclosure

Many of the offers that appear on this site are from companies from which Credit Sesame receives compensation. This compensation may impact how and where products appear (including, for example, the order in which they appear). Credit Sesame provides a variety of offers, but these offers do not include all financial services companies or all products available.

Credit Sesame is an independent comparison service provider. Reasonable efforts have been made to maintain accurate information throughout our website, mobile apps, and communication methods; however, all information is presented without warranty or guarantee. All images and trademarks are the property of their respective owners.