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Unless you have a ton of cash at your disposal, you’ll probably need credit at some point. Whether you’re buying a home, car or other big-ticket item, most lenders look at your credit score first.
If you have no credit history, begin building credit and boosting your score before you apply for a major loan. Opening a credit card account and using it responsibly is one way to do this, but it’s far from your only option.
Here are a few alternatives to help raise your credit score without using the magic plastic:
1. Ask companies to report on your behalf
Do you have any recurring bills you pay on a monthly basis, such as for rent, utilities, cable or a cellphone? Give the providers a call and request they report your account activity to the three major credit bureaus, TransUnion, Experian and Equifax.
Do this only if you have responsible payment habits, as payment history accounts for 35 percent of your credit FICO score, the most commonly used credit score. This history can have a significant impact on your score if there is not a lot of other data in your credit report.
Companies are not obligated to report to the bureaus, and your request is simply a favor that they have the right to deny. But with any luck, they will agree to your request.
2. Become an authorized user on another credit card
There are pros and cons to becoming an authorized user. If the cardholder has a strong credit background, signing on as an authorized user will enable his or her stellar behavior to improve your credit profile somewhat. But, if the cardholder is less responsible, your credit score could take a hit.
3. Apply for an installment loan
Installment loans paid down over time build your credit score because they show creditors you are a responsible borrower. The credit mix in your file makes up only 10 percent of your FICO score, but the impact has the potential to be greater if the information in your credit reports is limited.
Retailers sometimes offer promotional installment loans to customers with little to no introductory interest for a limited period of time. If you have the cash on hand, it may not be a bad idea to take this route. But be sure you have the total sum of cash available upfront to make timely payments and eliminate the balance before the interest kicks in.
4. Take out a federal student loan
A credit check is not required to obtain a federal student loan. All you need to do is fill out the Free Application for Federal Student Aid (FAFSA) and you’re set. Since it is an installment loan, it can help boost your credit score. Just avoid getting the loan and blowing through the money — getting in debt trouble will end up hurting your credit score over the long haul.
5. Research peer-to-peer loans
Companies such as Prosper and Lending Club offer peer-to-peer loans in an environment where borrowers are connected with individual investors. The interest rates are usually lower than those of traditional financial institutions. Most of the peer-to-peer lenders report to the major credit bureaus.
6. Try an alternative credit score
By reporting your payment history to an alternative to the big three credit bureaus, you can create a nontraditional credit score. Check out a service like Payment Reporting Builds Credit, known as PRBC, to learn more about how an alternative credit score service works.
For more advice, check out:
- “6 Ways to Keep a Stellar Credit Score in Retirement“
- “11 Surprising Ways to Wreck Your Credit Score“
Do you know of any other ways to improve your credit score without using a credit card? Feel free to share them in the comments below or on our Facebook page.
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