How To Build Credit Without a Credit Card

"X" over credit cardBeing that I have a credit card blog, it may sound ironic for me to talk about how to build your credit without a credit card. Does that make any sense?

Yes, actually it does.

I understand credit cards aren’t appropriate for everyone. For me and vast majority of the forum members, we use them in a very disciplined matter. So for us they’re great, but for you they might not be if you overspend with them.

And you know what? If you don’t have the full self-control to use them the right way, then I commend you for admitting that! Most people won’t admit problems, so to acknowledge credit cards are not for you shows you’re being realistic about your strengths and weaknesses.

What won’t build credit?

  • Phone/utilities do NOT build credit – I can’t even tell you how many people I talk to who believe that their cell phone, power, and gas bills build credit. Unfortunately they don’t. You see the reason the cable or phone company check your credit when you open a new account is because they want to make sure you will pay your bill. If your credit comes back as sketchy, then they probably will ask for a security deposit. What they won’t do is report your accounts to the credit bureaus… unless you stop paying. When that happens, they will report your account as a delinquent/bad debt. So in short, these bills can hurt your credit, but they can’t help it.
  • Having no credit = bad credit – I’ve heard some people say they go without a credit card because they wrongly believe it actually helps them. Well if you’re going to screw up your credit cards – in that case – it is better to have none at all. But whether it’s credit cards or another type of credit… the bottom line is you need some sort of credit accounts to build credit history.
  • Debit & prepaid cards don’t help – The same usually holds true for those rent-to-own places, too. Sorry, but these things won’t do diddly-squat for your credit. And if you’re wondering why they asked for your Social Security number when you got a card? That’s because of the Patriot Act – banks are required by law to verify your identity. They were not asking that for credit reporting purposes.
  • Rent is useless – Just like utility bills, rent generally won’t be reported unless you break your lease and flake on paying.

What will build credit?

Building credit scores and history without credit cards isn’t always the easiest, but that’s only because it’s using the road less traveled. And what road is that? Well I’m going to tell you about 5 different ways you can go. In no particular order, here they are…

1. CD Loans

Do you have some money held in a CD at a bank? You might be able to “borrow” the money and help your credit in the process.

In short, you are borrowing money from yourself. The bank uses your CD as collateral and loans you the money. Typically the rates are low since you are essentially assuming all the risk – i.e. borrowing $2k from a $2k CD.

Not every bank and credit union offers these, so you may have to hunt around. When you find one that does, make sure they actually report your loan to the credit bureaus (otherwise it will be pointless for building credit).

2. Car Loans

car key on hookAuto loans are probably one of the most common ways to build credit without a credit card. The good news? Even if you have limited credit history, you may be able to still get approved.

The bad news? The less credit you have, the higher interest rate you will pay. For this reason, you really need to be careful.

Plus let’s not forget… it’s sometimes just as easy to rake up debt on a car as it is on a credit card. Don’t let the salesman sweet talk you into buying more than you need.

And most important of all, pay attention to the price you are paying, not the monthly payment. The amount of your monthly payment can be manipulated to seem high or low, based on the length of the loan.

3. Student Loans

The price of tuition sucks, big time. But on the brightside, at least the loan will show up on your credit report.

However I should point out you can’t use that as justification to get bigger loans. Whether you have $10,000 or $50,000 in student loans, the impact it will have on your FICO score will probably be exactly the same. What matters is how you manage it, not how high or low the amount is.

4. Secured Cards

Orchard Bank MasterCardObviously this article is about building credit without a credit card. So why the heck am I talking about secured credit cards then? Because they aren’t your normal credit card.

A secured credit card works on the same principle as the CD loan mentioned above. You give money to the credit card company, which becomes a security deposit. You are only allowed to spend up to that amount. Then when you decide to close your account, you get your deposit refunded.

Since a secured credit card builds credit, it is a good option to consider. But keep in mind that even though you won’t be able to spend more than your deposit, if you don’t pay your bill each month then you will be charged interest.

5. Parent’s Account

This is not a route I recommend (will explain why in a moment). But regardless, it’s still a way how you can build credit so I will talk about it and let you decide. Yes, it still involves a credit card, but it’s without a credit card of your own (sort of).

If a parent adds you to their credit card account, then that will show up on your credit report. That is, assuming they add your Social Security and not just request a secondary card in your name.

There are a couple reasons I don’t like this:

  • What happens if your parents screw up? If they make late payments or otherwise experience financial problems in the future paying their account, then it will screw up your credit too!
  • Money is one of the biggest causes of arguments, right?

For other reasons I am against this, you can see my post about adding an authorized user to a credit card.

This article has been updated for 2013

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
Mike Smothers

If I receive a credit card from say, BankOne, are they required by law to report this to any of the credit bureaus? If so, if that credit bureau required by law to share this information with the other two major credit bureaus?


I agree that credit cards are not for everyone, so thank for putting other ideas out there. However, as of 2008, FICO no longer accepts authorized user information as part of their scoring. And, in some places, utility payments are now on credit reports.

FICO actually reversed that decision 🙂

In Sept. 2007 they announced they would no longer count authorized users, but then in July 2008 reversed it.