How To Build Credit Without a Credit Card

What is your credit score?

Your credit score is a measure of your financial health. This information is held by credit reference agencies who check whether you’re a reliable user of credit who pays their bills and repays loans. This information is vital to lenders, such as credit card companies, banks, and mobile phone providers. These lenders will consult credit checkers before handing out a loan to you.

According to CNBC Select, having a good credit score will save you money and help you:

• Qualify for rented accommodation.
• Get the best rates on car and homeowner insurance.
• Borrow money at a cheaper rate.
• Develop a good reputation as a borrower.

Understanding your credit score and how to interpret it

Over 40% of Americans have a FICO credit score under 700. But what does this mean?

Firstly, the FICO system is a method of credit scoring that was developed by the analytics company Fair Isaac Corporation (FICO) in 1989. Other systems exist, for instance, FICO’s biggest competitor is VantageScore, a scoring system developed in 2006.

Despite the competition, FICO remains the most popular choice. As such, many consumers think FICO ratings are synonymous with a credit score.

The basic FICO scores range from 300 to 850. The higher the score, the more attractive you are to lenders. Your credit score is calculated using different data points from your credit reports, with specific attention to the following 5 categories:

• 35% of your FICO score is based on your payment history. Bankruptcies, liens, repossessions, foreclosures, or late payments will adversely affect your score.
• 30% of the score is based on the amounts you owe. Having different credit card accounts in your name isn’t necessarily a bad thing, but owing too much will adversely impact your score.
• 15% is based on the length of your credit history. That is, the longer your track record of payment, the better your score. FICO factors in the average age of your accounts and the age of your oldest accounts.
• 10% is dependent on your credit mix. It’s good to show you can handle different types of credit, from mortgages to credit cards and installment payments.
• 10% is based on your recent search for credit. You want to avoid too many hard credit searches from lenders in a short period, as this can indicate risky borrowing.

A credit score of 700 or above is considered good. And a score of 800 or above is considered excellent. Whether you have a low credit score or a high one, it’s always in your best interest to increase it. The next question is, how do you increase your credit score?

How can I improve my credit score? 9 top tips to boost your credit score without a credit card

Listed below are 9 top tips explaining how you can do this.

Tip #1: Check your credit score

To improve your credit score, you have to know what your credit score is in the first instance. Knowing your credit score will indicate how much improvement you want to achieve.

The top three credit rating agencies in the US include Experian, Equifax, and Transunion. Use these rating agencies to check your credit. Note that checking your credit won’t affect your credit rating.

Tip #2: Get a credit builder loan

With a credit builder loan, you’ll put aside a set amount of money into a secure account. Usually, the amount set aside is between $300 - $1000. You’ll then make a fixed payment every month until you’ve paid back the full amount.

Tip #3: Manage your household bills

Paying back your utility accounts and rent will build your credit history and show companies that you’re responsible.

Tip #4: Manage your debt-to-credit ratio

You’ll want a debt-to-credit ratio (also known as a utilization ratio) that’s 30% or less.

Tip #5: Get on the electoral register

Yes, this means registering to vote can improve your credit score. Getting on the electoral register provides your proof of address.

Tip #6: Pay the bills under your name

To build credit without a credit card, you need to prove you’re able to make regular payments.

Tip #7: Become an authorized user of someone else’s credit card

As an authorized user you can piggyback from someone else’s credit card and credit activity to positively influence your credit.

Tip #8: Take out a personal loan

Some lenders will offer unsecured personal loans to individuals with bad or no credit.

Tip #9: Use a credit-building tool

Building a good credit score essentially comes down to demonstrating that you can actively handle credit and debt for credit agencies.