I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.
See all posts Frank GogolHow to Build Credit Without a Credit Card
Updated on March 12, 2024
Written by
Written by
Reviewed by
Rohit Mittal
Reviewed by
Rohit Mittal
Rohit Mittal is the co-founder and CEO of Stilt. Rohit has extensive experience in credit risk analytics and data science. He spent years building credit risk and fraud models for top U.S. banks. In his current role, he defines the overall business strategy, leads debt and capital fundraising efforts, leads product development, and leads other customer-related aspects for the company. Stilt is backed by Y Combinator and has raised a total of $275M in debt and equity funding to date.
See all posts Rohit MittalA good credit score is essentil to land the best mortgage rates, insurance quotes, or rental agreements. But getting a good credit score is often easier said than done. If you’re a non-credit card user, you might think you cannot influence your credit score. That’s a misconception. In this article, we’ll explain how to build credit without owning a credit card.
What Is a Credit Score?
When thinking of building credit, it’s important to clarify what a credit score is. Simply speaking, a credit score is a number between 300 and 850 that defines your creditworthiness, i.e., whether or not you should be given credit. Credit is like a contractual agreement where one party agrees to finance your transactions in exchange for a higher payment from you later.
Credit scores below 579 are considered poor, while those above 700 are considered good. A credit score above 800 is excellent, and you’ll most likely get the credit or loan you’re applying for.
The credit score is provided by consumer credit reporting companies like Experian and TransUnion. The score is based on your credit history, your total number of open accounts, total debt, and repayment frequency, among other metrics.
Your credit score significantly affects your financial life. Whenever a lender considers your loan application, they’ll thoroughly examine your credit history by referring to the credit reporting companies. Of all the credit-scoring systems, the FICO score is the most common one.
Why Are Credit Scores Important for Immigrants?
When you come into the U.S. as an immigrant, you’re not required to have a good credit score as part of the immigration process. But upon arrival and through living your life, you’ll realize that having a credit score is just as important for immigrants as a regular U.S. citizen.
The procedure for securing a loan or a mortgage or anything that has to do with borrowing money is the same for immigrants. There’s no relaxation in terms of credit scores. Your credit history will be looked at closely. But since you have no credit history, it’s crucial to build one for yourself as soon as possible.
Here are a few ways you can improve your credit score so you can secure a loan down the line.
Can You Build Credit Without a Credit Card?
Maintaining a good score is essential for so many purposes, like applying for a loan, applying for rent, applying for a mortgage, and even applying for a credit card. Yes, your credit score will be looked at before you are approved for a credit card. This means you need to build and influence your credit score even if you don’t have a credit card.
How to Build Credit Without a Credit Card
As an immigrant, you need to start building your credit score as early as possible. The best place to start is often by getting a secured credit card from your bank. These types of cards are secured by collateral and hence can easily be obtained. The collateral can be either a money deposit or property. But what if you don’t want to get a credit card just yet? There are other options for you. We’ll explain a few of them here.
Take a Credit Builder Loan
The best way to get started with building your credit in the U.S. is to take out a credit builder loan. This method is recommended even if you don’t need a loan at the moment. And the way it works is simple; just visit your bank and request a credit builder loan.
Your bank must be running such a program; otherwise, you’d need to open an account in another bank. Fill out the application and take out a small loan of a few hundred or thousand dollars. Then pay off the dues monthly in a timely manner. Your loan repayments will be reported to at least one credit bureau, thus helping you build your credit score.
Get a Personal Loan
If the bank does not offer a credit builder loan or for some reason you’re not eligible for it, then you can take out a personal loan. The process remains the same. You fill out an application requesting the loan, and the bank has to approve your application.
While a credit score is often important in these cases, you can take advantage of the good relationship you might have with the bank. After all, it’s the bank or the financial institution that makes the final decision on whether or not to lend you money. If they feel safe with your transactions and give you the benefit of being an immigrant, then you may secure a personal loan, however small it might be.
Then the trick is to pay off the loan on time to boost your credit score.
Use a Car Loan
If possible, you can go for a car loan. The advantage of taking out a car loan is that the repayments you make count towards a good credit score more than personal
Repay an Existing Loan
If you already have an existing loan, like a student loan or car loan or house loan, then you can concentrate on that and pay the off loan as quickly as possible. Paying it off promptly will contribute immensely towards your credit score. Just make sure you don’t default on the loan, which could otherwise worsen your credit score.
Become an Authorized User
When you don’t have a credit card for yourself, you can piggyback on someone who has one and reap the benefits. Most credit card companies allow their cardholders to add users to their accounts. These added users are authorized to use the credit card for their own transactions. In fact, you’ll be issued a separate physical card for your transactions.
And when you make timely payments, those are reported to the credit card bureaus, and your credit score subsequently improves.
One disadvantage of this method is if the main cardholder fails to make timely payments or spends above the credit limit, your score will be impacted to some degree.
Pay Rent on Time
Last but not the least, your rent payments can contribute towards your financial health. While most landlords do not report your payments to banks or credit bureaus, this can showcase financial consistency from your end. Other monthly payments like cable, internet, and gas also demonstrate your ability to pay. Even if they don’t improve your credit score, they can improve your odds of securing a personal loan or other types of
Conclusion
These are a few ways you can build your credit score. You must also consider managing your debt-to-credit ratio, maximizing your credit history, and staying away from bad credit or debt. Over time, you’ll have a good credit score that’ll allow you to secure bigger
Frank Gogol
I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.