Alternative Methods to Build Your Credit (Without Credit Cards)

As you may know, credit cards offer one of the simplest solutions when it comes to building up your credit rating. There are a few reasons why this method is preferable to others: it gives you spending power when you’re low on funds, it’s the quickest way to build credit, and credit cards are so darn easy to get. Of course, there is the dark side of credit lending to contend with, as well. Most credit card companies will charge you higher interest rates than other types of lenders and offer you a limit that is likely beyond what you can actually afford to pay. While carrying a balance and making at least minimum monthly payments is what allows you to tune up your credit rating, it also means that you’re paying more for every purchase thanks to interest (and sometimes significantly more). Your creditors want you to be in debt…the longer you take to pay off your credit card, the more they earn in interest payments.

Of course, this might not sound like a good trade-off to you, and you’re not alone. Many adults these days are beset by massive credit card debt, and it can quickly turn ugly. If you don’t (or can’t) pay, most companies reserve the right to increase your interest rate (sometimes more than double) and they will turn you in to credit reporting agencies, thereby putting black marks on your credit report. In short, those who fail to use credit cards responsibly, or simply get in over their heads, can actually do more damage to their credit score in the long run. And it isn’t always so easy to clean up your report; often you will have to fight to get black marks expunged after you have paid your debt.

Luckily, there are alternatives when it comes to building up the credit rating you’ll need to get a loan down the line for big-ticket items like a new car or a home. In case you didn’t know, your credit score is bolstered by making payments to companies that report to credit agencies. So one way you can earn credit is by considering other types of credit accounts that are not likely to be as detrimental as credit cards. For example, you could take out a small personal loan from your bank. If you’re committed to building credit, all you have to do is let the money sit and make your monthly payments. You will end up losing some money on the interest portion of the payments, but consider this the cost of doing business.

You might also approach your bank about setting up a secure card with a low limit (say, $500). You’ll send in a check for the limit of the card, which the bank will hold as collateral (you’ll get it back after a year, with interest). You’re unlikely to overspend, it comes with a lower interest rate than most credit cards, and it will help you to build your credit in a safer way. You might also use FICO’s Expansion Score or the PRBC (Payment Reporting Builds Credit), both of which audit your monthly payments (utility bills, cell phone costs, and even repayment of payday loans online) and report back to credit agencies. These alternative methods may take a bit longer, but they will help you to build your credit just as surely as credit cards without many of the potential pitfalls.

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