Life without a credit card

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Thanks to quick online applications and sometimes instant approval, credit cards make building your credit history just as easy as making purchases. But they can also make it easy to get into debt if you’re having trouble paying on time or spending more than you have.

As a result, some people view credit cards with skepticism: 17% of US adults don’t have one, according to a 2019 Federal Reserve report.

No financial product is one size fits all, and it’s okay if credit cards aren’t for you. There are other ways to get a loan – and keep your credit score high – that don’t involve a credit card.

Be careful with loan payments

If you’re already paying off an installment loan, like a student loan, on time, your efforts will make a difference. Loan payments are reported to credit bureaus so over time this can improve your credit history.

“Student loans are often the easiest loan to qualify for, especially if you are very young,” said Adam Sanders, director of Successive Release, a Philadelphia-based organization focused on helping ex-offenders of imprisonment to find financial and professional success. He adds that “student loans are often the way many adults start building their credit.”

No student loan in your name? A credit builder loan from a bank or credit union can be an option. With this loan, the lender pays a preset amount into a savings account and you pay monthly until the deposit is repaid.

Pay other bills on time

Other bills that you pay on time each month – cables, water, electricity, and so on – generally don’t have a direct impact on your credit reports, but that doesn’t mean they’re not important to your overall financial health.

“You need to maintain pristine, non-traditional credit,” said Roslyn Lash, accredited financial advisor, author of The 7 Fruits of Budgeting, and founder of FinCoach Consulting in Winston-Salem, North Carolina.

If you skip things like electricity and cell phone bills, these accounts can be kept in collections, which can definitely hurt your credit.

Employ other good payment histories and habits

Speaking of electricity and cell phone bills: While these on-time payments are traditionally not included in credit reports, the tradition is changing. Experian Boost provides a free way to add positive billing information to your Experian credit report for these types of expenses. To participate in Experian Boost, you must create an account through Experian.

“Two out of three consumers see improvements in their credit score, with an average increase of about 13 points,” said Rod Griffin, senior director of consumer education and advocacy at Experian. “People with thin credit files and fewer than five credit accounts report an average increase in their FICO-8 scores of 19 points.” (There are many versions of FICO scores; FICO 8 is one of the most widely used in admission decisions.)

The catch? Not all lenders use Experian or the Experian Boost affected scoring models when making lending decisions.

Another scoring model known as UltraFICO is still in the pilot phase. Once it is publicly available, consumers can allow access to their checking and savings account activities. This includes the duration of the account opening, the currency and frequency of bank transactions, evidence of a consistent cash balance and a history of positive account balances. However, as with Experian Boost, choosing UltraFICO won’t affect any of your credit scores.

Paying your rent can also help build your credit score. Some landlords and property managers are already reporting payments to credit reporting agencies, but if you don’t ask if they would be ready to start. Or consider signing up for a rental reporting service. Keeping a record of on-time rental payments not only helps your creditworthiness but also makes it easier to qualify for other rental homes in the future.

Become an authorized user

While this requires a credit card, you don’t need to open, use, or even have the card on hand.

It just requires a master account holder – perhaps a family member or loved one – add you to their account. You get your own card, but the primary user is responsible for any debts incurred.

To bolster a thin credit file, make sure the primary user already has a good and long credit history and see if the card issuer is reporting authorized users to the credit bureaus.

When used responsibly, credit cards are a way of building credit, but they are not for everyone. Consumers with little to no credit or poor credit may not qualify for cards with reasonable and affordable terms.

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