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Can You Establish a Credit Score without Credit Cards?

Trying to establish and build credit can be a complicated process, especially if you don't own a credit card. One common misconception is that if you don't have a credit card you can't build credit. However that's not the case, there are plenty of other ways to create and grow your credit score.

The first step is to understand what components make up your FICO score, which essentially is your credit score.

FICO Score = payment history + credit utilization + length of credit history + types of credit in use + new credit

You are able to find all of this data on your credit report from the 3 major reporting agencies - Experian, Exquifax, and TransUnion.

If you are not interested in opening a credit card or don't have enough credit to open a credit card you can use different types of payments. These payments can help establish your payment history. The most common payments to use are rent payments. Experian now includes rent payments in credit histories. There are many websites that can send rental-payment information to credit bureaus for you so it will be reported on your credit report.

The next step is to self-report. Since credit reports will only track the money you borrow it won't include information about your other payment histories, like payments on rent and utility bills. A good way to report yourself is to use companies like Payment Reporting Builds Credit (prbc.com). Having a record of paying on time can only help your credit score.

Another tactic is getting a credit builder loan, which is used to build and sometimes rebuild a person's credit report and credit score. These loans are generally given by credit unions, however some local banks might offer them too. It is important to know how a credit builder loan works, the loan is usually a small sum (around $1,000) that is put into an "interest-bearing" account with the credit union. That person will make monthly payments until the loan is eventually paid off. After, the funds including the interest are released back to the person. However, since the loan was an extension of credit the credit unions are technically allowed to report the loan to the credit bureaus.

Those are some helpful ways you can establish credit for the first time. However, these steps will not help if you do not make your payments, and could possibly hurt you if you don't pay on time. in the long run. A few extra tips to help are having a stable well-paying job, and also a good relationship with your bank.

We at Timothy J. Sierra Attorney at Law would like to state that our blog posts and links, on our web page or any other social media outlet, to any other web pages are not intended for legal advice. We are not responsible for third party website information. If one is in need of legal advice please contact an attorney directly.

Source: U.S. News & World Report | Money

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