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6 Easy Ways to Build Credit Without Credit Cards

It’s a frustrating contradiction: You can’t qualify for credit without a credit history—and you can’t build a credit history without borrowing. What is one to do?

Borrowing is the most common way to build a credit history, but it’s not your only option. Use these tactics to demonstrate to lenders that you’re a reliable credit risk:

1. Put services in your name
Most utility providers (cable, electricity, internet, etc.) don’t report on-time payments to credit bureaus, but there are a few out there that do. It doesn’t hurt to take the time to call your provider and ask. Even if your provider does not report positive payment history to the credit bureaus, your account activity may show up on a specialty industry credit report, like the National Cable, Telecommunications and Utilities Exchange (NCTUE). The NCTUE is a specialty credit reporting agency that maintains and shares information about accounts with many large telecom and utility companies. The history you build with these different providers can follow you when you move to a new area. In certain cases, you can contact NCTUE and request a letter of reference to increase your chances of obtaining a loan at a financial institution.

2. Apply for a Credit Builder Loan
There are many loan options that specialize in helping those who are looking to establish their credit history. The most popular of these loan options are credit-builder loans. A credit-builder loan is exactly what it sounds like — its sole purpose is to help people build credit. You borrow a low amount (often $1,000) and makes payments for 6 to 12 months. The payments then get deposited into a savings account and are reported to the credit bureaus. When the loan is paid back, the funds in the savings account are released.  Positive (or negative) payment history is reported to the credit bureaus.

3. Report Rent
One benefit of being a renter is that it can help build or establish your credit. Many large corporate landlords already report positive rent payment history to the credit bureaus. If your landlord doesn’t, register with Rental Kharma or Rent Reporters. These websites can report the payments you are already making and with verification from your landlord, add it to your credit report. However, these services can have their drawbacks as well.  At the time of this article, both of these services only send data to one of the three major credit bureaus (TransUnion), not Equifax or Experian.

4. Secured loans
If you have some savings, a secured loan may be the best way to go.  The lender asks you to deposit funds into an account and then places a hold on those funds as security for a loan.  The rates are often very low since there is no risk to the lender.  Be careful, though.  If you find you’re in a jam and can’t make payments, talk to the lender about releasing the funds to pay the loan back.  If you just wait for the lender to use your deposit to offset the amount you owe, your credit history will suffer.

5. Start small
Maybe you can’t qualify for a home loan or auto loan right off the bat, but if you plan ahead and start with a smaller ask, you can build credit over time.  Instead of asking for a large amount, start small by asking for $500-$1000.  Then once you’ve paid that amount successfully, ask for a larger amount.  You’ll build history, hopefully in time for you to buy that car you’ve been eyeing.

6. Build a relationship
A lender is more likely to give you a loan (even without formal credit history) if you have a relationship built with that institution.  If the credit union (or bank) can see that you have your direct deposit coming in, you don’t overdraw your account, and you manage your money responsibly, they are more likely to give you a loan.

It may surprise you, but saving regularly is a good habit to show a lender. It demonstrates that you can commit to regular payments and shows that you understand that saving comes before borrowing. Many people borrow because they have no savings to fall back on when they have financial needs. If you are already a saver, you show that you don’t intend to make credit a substitute for living within your means and saving for your goals.

Fitzsimons Credit Union offers many other different loan options to help members establish their credit. Visit one of our branch locations or visit our website and fill out an application. One of our Financial Consultants will be glad to work with you to create a personalized plan that helps you achieve your financial goals.