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How to Build Credit Without Credit Cards

It's a frustrating contradiction: you can't qualify for credit without a credit history - and how can you build credit history without borrowing? Borrowing is the most common way to build a credit history, but it's not your only option.

There are several ways to demonstrate to borrowers that you're a reliable credit risk:

  • Put services such as utilities, cell phones, and cable in your name.
  • Pay your bills, including rent, on time. Get into the habit of ignoring a 5- or 10-day grace period - instead, always pay on time or early.
  • Have parking tickets or unpaid library fines? Pay them promptly and avoid getting any others.
  • Use a checking account instead of cash or money orders - the key is to verify your payment history.

You can also talk to your financial institution about other forms of credit. For example, you may qualify for a secured credit card. With a secured card, you pledge money to be held in a savings account, which sets your credit limit. Then, you use the credit card and pay it back while leaving your savings in place. After a time, perhaps a year or two, during which you consistently meet your secured card payments, you ask to convert to a conventional credit card.

A similar option, if you qualify, is to ask for a secured loan. In this case, you receive the loan amount as a lump sum and repay the loan in monthly installments. Again, you're demonstrating that you are a reliable borrower.

It may surprise you, but saving regularly in itself is a good habit to show a lender. It demonstrates that you can commit to regular payments and indicates that you understand 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 live within your means and save for your goals.

Together, these habits contribute to a credit history that substitutes for your lack of a conventional credit record. If you have questions about becoming creditworthy, talk to your financial institution to know your options.