It’s true that the fastest way to build credit is to use a credit card. However, many people prefer not to use credit cards. Even if you don’t want to use credit cards, though, your Fico credit score is important. Mortgages and car loans require that you have good credit if you want the best rates.
On top of that, there are a number of other financial service providers that want to know your credit score. Satellite and cable TV providers often ask to run your credit to determine whether or not you need to provide a security deposit. Insurers often check your credit to determine your premiums. While employers aren’t supposed to check your credit score, they can check your report.
You want your credit report to show your finances in the best light, and you want your credit score to reflect your good habits as well. But, if you don’t use credit cards, how can you build a credit history that speaks well of you?
Alternative Credit Reporting
The increased interest in building credit without credit cards, and proving good payment records without the need for high interest debt, has prompted the development of some alternative methods of credit reporting.
Even FICO, the company that created the credit score and is considered the foremost authority in such matters, has developed an alternative score, which it calls the Expansion Score. This score takes into account your bank account activity, as well as your utility payments, rent payments and your purchase plans. However, you have to request that companies report on this information, and you should be aware that negative information is, of course, recorded along with the positive information.
The credit agency PRBC uses the Expansion Score as part of its service to provide a consumer credit report that includes “non-traditional” information. You submit your information and pay a fee to have it verified, and those you make payments to report your history. On top of that, the major credit bureau Experian is adding rent payment history to its scoring model in some instances.
Other Strategies for Improving Your Credit Score
In addition to working with alternative credit bureaus and scoring methods, you can also take other steps to improve your credit — without a credit card. For the most part it’s fairly basic:
- Avoid missing payments: Even if you aren’t using an alternative credit bureau method of reporting, a missed payment on a non-credit account can be reported, and impact your credit score. Stay current on all your payments to avoid dings to your credit.
- Fix errors on your credit report: Since your credit score is based on the information in your credit report, wrong information can mean a lower score. Different credit scoring systems may use different information so you should review your credit report, and fix errors so that your financial history is accurately portrayed.
- Get an installment loan: A personal loan, auto loan or student loan can be used to help you build credit. Interest rates are usually lower than those on credit cards, and your on-time payments will help you build credit without the need for credit cards.
With some planning, and some creativity, it’s possible for you to show that you are financially responsible without the need for credit cards — as long as you can convince those you do business with to use alternative methods of reporting.
Photo credit: SqueakyMarmot