Credit can be a real Catch-22. You need good credit to get approved for credit. But you need a history of responsibly managing credit to have good credit. But there are options for building your credit without a credit card or loans that require great credit. Discover five ways of building your credit below.
A Quick Word about Building Credit
Remember that improving credit is typically a long-term process, and you must be willing to put in the work. That includes paying your debts on time and as agreed and not running up high balances and debts you can’t pay.
There’s no guarantee when it comes to credit scores; they’re based on complex algorithms that take many factors into account. However, managing credit responsibly over time and making timely payments is one of the best ways to help your credit score. Couple that with some of the tactics below for even better chances of success.
1. Become an Authorized User on Someone Else’s Credit Card
This first option does involve a credit card, but it doesn’t require you to apply for and get approved for one. Instead, you can ask someone you trust to add you as an authorized user on their credit card account.
An authorized user is someone who is authorized to make credit purchases using the credit card account in question. Typically, the credit card company sends a card for that person to use, but your friend or family member doesn’t have to give you the card or allow you to make purchases on the account for this to work.
This tactic works when the credit card company reports payments and account history on the credit reports of authorized users as well as account owners. Not all credit card companies do this, so double check before you go through the trouble of becoming an authorized user.
If the credit card company does report for authorized users, then the account will be listed on your credit report. That can increase the age of your credit history, which is good for your score. And, if your friend or family member pays their bills on time, that positive payment history is also now associated with your credit report too. That’s also good for your score.
The potential downside of this method is that if the person doesn’t manage their credit card account responsibly, the negative items can hit your credit report too. So, only use this method if you trust the person and know they manage their bills well.
2. Sign Up for a Service That Reports Rent or Utility Payments to Credit Bureaus
You might pay your bills on time frequently, but they’re not bills that regularly get reported to the credit bureaus. For example, you might pay your rent, phone bill, utility bills or even your Netflix account fees on time every month.
You can get credit for some of those on-time payments. Experian Boost is a free service that lets you get credit for paying certain bills, including phone and utilities as well as Netflix, on time. This service ensures those payment accounts show up on your Experian credit profile.
You can also find paid services online that will report your rent or other payments to various credit bureaus.
3. Get a Secured Installment Loan
Secure installment loans are those that are secured by a piece of collateral. Collateral is something the lender can take back and liquidate to recover any losses if you don’t pay as you agreed.
One of the most common forms of secure installment loans is a car loan. If you don’t make your monthly payments, the bank can repossess the car to get back some of the money. Because lenders have an option for recouping losses on secured loans, they can sometimes be easier to get than unsecured loans — especially if you’re looking to finance a larger amount. That’s because there’s slightly less risk for the lender.
You can get secure installment loans for a variety of purposes, including buying appliances, furniture, recreational vehicles, jewelry or computers.
These types of loans might be a good way to build credit if you also need one of these things. For example, maybe you need a car to get to work. If your credit is lackluster, you could still qualify for a car loan — it just may be at an interest rate that’s higher than you like. Since you need the car, you might accept those terms for the time being.
Then, you make payments as agreed on the car loan. Over time, that payment history and other positive actions can help improve your credit. When you’re ready to get another loan in the future, you may qualify for a better rate. In some cases, people even refinance their car in a year or two because they’re able to get a better rate at that time and save some interest expense.
4. Pay off Existing Debt
If you already have any debt, you can help improve your credit situation by making payments on it. Paying all installment loans on time consistently can improve your credit because payment history is a huge factor in your credit score.
But paying down revolving credit can be even more of a credit booster. That’s because another big factor in your credit score is your utilization rate. That’s how much of your available credit limit you’re currently using. If you have $5,000 in available credit, for example, with a balance of $4,000, that’s an 80% utilization rate. That’s considered very high.
If you can pay that balance down to $1,000, you only have a 20% utilization rate. That’s much better for your overall score.
5. Apply for an Installment Loan
Applying for an unsecured personal installment loan is another option for building credit. These loans often involve smaller amounts and can be paid off in a relatively short amount of time — terms range from a few months to a few years depending on the loan. As long as you make the payments on time and the lender reports to the credit bureaus, an installment loan typically helps boost your credit.
Consider applying for an installment loan from Wise Loan today. You don’t need good credit to apply or be approved, and you can get a decision on your application in just minutes. Plus, if you apply before 11 AM central, you could get the funds in your account as early as today, which is an important convenience for people who are trying to build their credit and handle any urgent financial needs. In fact, if you qualify for instant funding, your funds could be deposited in just a few minutes.
Wise Loan products are designed to encourage people who want to be responsible with debt and build credit for the future. In fact, if you pay the loan off quickly, you can earn a bonus that’s deposited into your Nest Egg account. Wise Loan also reports to two of the three major credit bureaus, so your positive loan payment history can help you build a good credit history. That’s actually not the case with all lenders — lenders are under no obligation to report to any credit bureau.
Apply today. The application only takes minutes and doesn’t require good credit.