4 Ways to Establish a FICO® Score Without Applying for a Credit Card
It is possible to build good credit without a credit card.
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A credit card can be a useful tool when you're ready to establish a FICO® Score for the first time. But if you prefer to build a FICO Score through different methods, you'll be happy to learn that it is possible to build good credit without a credit card as well. If you don't feel ready to open a credit card yet, the alternative options below might help you begin your credit journey in other ways.
1. Credit Builder Loan
When you're building credit from scratch, it can sometimes be difficult to qualify for your first credit accounts. Without existing credit history, lenders may be hesitant to take a chance on you and approve you for certain types of new financing products.
A credit builder loan could be a good solution to consider when you have no FICO® Score or a thin credit file. This type of loan is designed to reduce the lender's risk. So, it may work well for people who have no established credit or even those with bad credit.
With a credit builder loan, the lender doesn't give you the money you borrow directly. Rather, there's a waiting period.
One common method for lenders who issuer credit builder loans is that they place your funds in a savings account or certificate of deposit (CD). You repay the lender monthly, and once you make your final installment payment the lender releases the loan proceeds (minus any fees). Depending on the lender, you might even earn interest on the loan proceeds it holds in savings until you pay off the loan. But the interest the lender charges typically offsets any interest you may earn.
Of course, the biggest potential benefit of a credit builder loan is the potential to establish positive credit history. So, it's important to find a lender that reports account activity to all three credit bureaus—Equifax, TransUnion, and Experian.
2. Other Installment Loans
It's not a good idea to go into debt for the sole purpose of establishing credit. But if you need to borrow money for other reasons, the installment loans you open may have the potential to help you build your FICO® Score.
An auto loan is one type of installment loan that could help you build your FICO® Score if you manage it in a responsible manner and the lender reports the account to the three major credit bureaus. Even with little to no previous credit history, this type of loan might be easier to qualify for than some other types of loans.
Auto loans are backed by collateral (aka the financed vehicle) that the lender can repossess in the event of a default. This collateral reduces the lender's risk. Therefore, borrowers with limited credit, no credit, or even poor FICO® Scores may find it easier to qualify for auto loans with some lenders. Note that as you work to improve your FICO Score, you could increase your approval odds and save thousands with lower interest rates and better borrowing terms.
3. Rent Reporting
Paying your rent on time is a good habit to establish. But if your landlord doesn't report your rent to the credit bureaus, that positive payment history doesn't have the ability to help build your FICO® Score. Credit scoring models only consider information that appears on your credit reports.
As a consumer, it's not possible to add information to your own credit report. Yet there are third-party rent reporting services that might help share your rental payment history with one or more of the credit bureaus on your behalf.
Some rent reporting services are free. Others charge a fee. Additionally, some rent reporting services do not share information with all three credit bureaus. Therefore, it's important to do your own research to nail down these important details.
Below are a few third-party services you may want to consider.
- Experian Boost: You can use this free service to add rent payments along with eligible utility bills, mobile phone bills, and streaming services to your Experian credit report.
- Piñata: This free app allows renters to have their rent payments reported to TransUnion at no cost.
- Self: This free service helps users report rent payments to all three credit bureaus. A premium Rent+Bills service is also available, including bill payment reporting to TransUnion, credit monitoring, and additional services, for $6.95 per month.
- RentReporters: Receive 24 months of back rent history with Equifax and TransUnion plus ongoing rental reporting. To join, the company charges a $94.95 signup fee (split into 3 monthly payments of $31.65) plus a monthly fee of $9.95.
4. Authorized User Status
Another possible way to establish a FICO® Score without opening a credit card of your own is to become an authorized user on a friend or family member's account. If the card issuer reports the account to the credit bureaus for both you (the authorized user) along with the primary account holder, there's a chance it might benefit you.
Keep in mind, it's best to ask a family member or friend to add you to an account that is well-managed with positive payment history and a low credit utilization ratio. If you become an authorized user on a credit card with late payment history or a high balance-to-limit ratio, the account might hurt your FICO® Score rather than benefit it.
Bottom Line
Smart credit management habits can help you establish a FICO® Score over time—with or without a credit card of your own. Yet no matter what type of credit account you open, it's important to follow sound credit management habits.
On-time payments are a must, since payment history is the most important factor that influences your FICO® Score. It's also wise to study other factors that shape your FICO Score so you'll know how to maintain good credit after you establish it.
Get your FICO® Score from FICO, for free. No credit card required.
Michelle Black, Founder of CreditWriter.com is a leading credit expert, financial writer, and speaker with nearly two decades of experience. Her work has been featured with major outlets such as Forbes, Reader's Digest, and U.S. News and World Report.