6 Ways to Build Credit without a Credit Card
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- By Jennifer Calonia
- April 29, 2014
Whether you’re new to using credit or have made a few dire credit mistakes in the past and need to rebuild, growing a robust and positive credit history can make or break your purchasing experience for big-ticket items.
Generally, shoppers turn to a conventional credit card as a method of demonstrating creditworthiness, but if you don’t have a strong credit history, some creditors are unwilling to risk granting you a line of credit. This catch-22 makes it difficult for someone with good intentions to improve their credit.
Learning how to build credit isn’t a talent reserved for a lucky few, you just have to take deliberate actions to actually impact a positive change to your credit score. Here are six helpful tips from credit professionals and real people who’ve made waves when it comes to building good credit.
1. Safeguard Your Credit With a Secured Card
Unsecured credit cards are a riskier option for banks and creditors to approve, since they offer no security to the institutions should you end up in default. A helpful option for those starting with poor or no credit is to apply for a secured credit card instead.
A secured credit card often requires you to provide a certain amount of cash to the card issuer as collateral. This amount then establishes the available credit on the card.
New York resident Tonya Rapley, 29, took advantage of this helpful credit-building tool, among other approaches, to help propel her credit score by more than 120 points.
An outreach coordinator for a local non-profit and graduate student in the process of earning a master’s degree in urban policy and affairs, Rapley said that she “got a rebuilder card and paid it in full each month, then used that [credit] history to get two premium cards and paid those in full each month,” steadily developing a positive history with credit companies.
Keep reading: How Bank Secured Credit Cards Really Work
2. Make a Name For Yourself
When starting out with credit, it’s helpful to start off small. Utility services operate in a similar fashion to other lines of credit. Think about it — a company is giving you service (i.e. electricity, cable TV, etc.) in advance, relying on your promise to repay them for these services at the end of the month when it’s billed.
Having this type of credit under your name is essential, however; so, handing over your share of the utility bills to your roommate isn’t going to cut it. This practice is really only beneficial if the account is under your name — the same goes for cosigned loans, like an auto loan.
You may get a competitive interest rate with the help of a cosigner, but piggybacking off someone else’s credit can not only be a sticky situation, but also unrewarding when building your credit.
3. Phone In a Favor
Naming yourself responsible for your household’s utility services is a good habit to maintain, but there’s still another step to take in order to reap the credit history benefits of putting this type of account under your name.
Some utility companies only report your payment history to credit report bureaus (Equifax, Experian and TransUnion) when an account has become so far delinquent that the balance due has been reported to a collections agency.
Usually, service providers will send this information to credit bureaus upon request, so contact your provider’s customer service hotline to see if it can accommodate this favor.
Related: How to Build Credit While in College
4. Have Companies Cut You Some Slack
If you’re trying to learn how to build credit because you made a few bad decisions in the past, there’s no harm asking creditors for a bit of flexibility by letting your transgressions slide this one time (hopefully you stay true to your word by keeping your creditworthiness on the up-and-up).
State your case and, if they’re willing to give you a pass, ask them to send a goodwill letter to the three credit reporting bureaus to erase the misdeed.
5. Mix Up Your Credit
In addition to applying for a secured credit card and having your utility bill payment history reported, look into opportunities to mix up your lines of credit with a “rebuilder loan”. These loans are usually small personal loans offered by banks and credit unions to help boost borrowers’ Fair Issac credit score in a healthy, manageable way.
Mixing the types of credit under your belt, like “revolving” credit (e.g. a secured credit card) and “installment” credit from rebuilder loans, can positively affect your credit score by as much as 10 percent.
6. Sync With Your Credit Report
The most important step when it comes to how to build credit is knowing your starting point. You can’t know how much you need to raise your credit score without first referencing your credit report. This is the most basic, yet practical, step that even professionals ensure their customers perform.
Illinois-based mortgage loan officer Sean O. McGeehan explains the extent of misreporting potential clients experience when undergoing the mortgage approval process.
“One of the first things we do when pre-approving a client is check their credit score with all three bureaus,” McGeehan said. “Many credit reports have errors due to someone having a common name like ‘John Johnson,’ or a similar name as their father, like a Mike Henderson Sr. and Mike Henderson Jr. … We can have these things corrected in 48 hours with the credit bureaus with something called a rapid rescore. We just show them paper documentation supporting our claim.”
Mistaken identity is all too common, which is why checking reports for errors is still such an effective way to build good credit.
Dan Nainan, comedian and self-taught credit expert, learned the value of correcting credit report errors first-hand. While requesting an increase on his credit card limit, he was denied due to two negatives on his report. Upon further investigation, he found that two accounts — one from a doctor’s office and another from DirecTV — belonged to his father, who has a similar name, and were erroneously put under his credit report.
“I sent a [certified] letter to Equifax disputing two items that were erroneous,” Nainan said. “Sure enough, I was pleasantly surprised to receive a letter that the items had been removed from my file, and my credit score increased from 715 to 785.”
The turnaround time to correct the errors on Nainan’s report was just six weeks. And it’s this level of sleuthing that can make the difference when a credit or purchasing decision falls back on your credit report for the final say.
Photo credit: Gonzalo Malpartida