So you want to have a good credit rating but don’t want to use a credit card of your own? No problem. Although regular charging is the fastest and easiest way to populate a consumer credit report with the type of activity that other lenders most like to see, you can still add attractive information.
First know that there are three major consumer credit reporting agencies in the United States – TransUnion, Equifax, and Experian. Their job is to collect data that is sent to them, then compile it into constantly updating files that list your debts, accounts, and payment history. Credit scores are developed from all that data. The most common scores are the FICO and VantageScore. Each system weighs certain activity more heavily, and then produces a number of between 300 and 850. Higher scores indicate less lending risk and vice versa.
For a good credit score, you’ll need a long, positive history of borrowing and repaying money from companies that furnish credit reporting agencies with your activity. Here are some creative ways to get it done.
- Piggyback on someone else’s credit card. If you can convince a friend or relative to add you to a credit card account as an authorized user, that person’s credit card activity will also appear on your credit reports. Once it does, it will be calculated into your credit scores. To sweeten the deal, you may want to tell the person that you don’t want access to the card. That way he or she assumes no risk. (Authorized users aren’t liable for any debt they may acquire.) The account owner may even benefit with additional rewards points, since many issuers will tack on thousands of extra points for each authorized user. The deal must be advantageous to you too, though. Only get into these arrangements with people who pay on time and don’t carry over a balance. Ask first and keep a close watch on your credit reports. If you see high debt and missed payments, call the issuer to excuse yourself from user status. When it’s over, the account won’t appear any longer and you’ll be back to the beginning.
- Have student loans? Manage them brilliantly. One of the wonderful aspects of loans for undergraduate eduction is that they are granted to people even if they don’t have a credit history – or do, but it’s a bad one. Just about any college student can get them. If you do and they’re in a grace period, deferment, or forbearance, they are in good standing, but aren’t really boosting your scores. When you start to whittle them down they will, though, so if you can send higher than requested sums by the monthly due date, do so.
- Finance a vehicle. If you want to buy a new (or new to you) car, consider borrowing for it. To get a good financing deal you will have to have an established credit history, but if your goal is to build a score, you may want to sacrifice a little money. You can dramatically reduce the overall cost by saving for a large downpayment as well as for most of the balance of the car’s value. Then you can finance the remainder of the car’s price. Pay it off within a year with large and steady payments.
- Become a credit union member. Joining a credit union won’t automatically help your credit rating, but taking out a loan from one will. Credit unions are, essentially, nonprofit banks. As a member, checking accounts are anywhere from free to cheap and you are required to open a savings account. When you’ve been with the credit union long enough to show that you can keep money in without overdrawing the accounts, ask for a small personal loan. Use the funds to buy something that is within your budget, and repay the loan quickly. For example, if you took out a $1,000 loan at 10 percent interest and paid it back in four months, the fees would only be about $20 in total.
- Cosign on a loan. This option is more dangerous than becoming an authorized user on someone else’s credit card because you will be equally liable for payment. However, the loan will appear on your credit reports. As long as it’s managed well (by now you get the picture: perfect payments plus a rapidly declining balance) you will come out ahead score-wise.
- Have non-credit accounts be added to your file. Some landlords and utility companies will report a person’s account information to the credit reporting agencies upon request. While this type of activity my not be factored into the credit scores that lenders use, anyone who pulls the actual report will see the accounts. It could work in your favor.
Mind that what shouldn’t be on your credit reports is just as important as what does appear. Debts that have been acquired by collection agencies (especially if it happened within a few years) drag a rating down. Bite the bullet and pay them. A satisfied balance is better than an outstanding one. If you’ve been sued for a debt and it is showing up as a judgment or you owe money for child or spousal support, have a tax or other lien, pay those off too. Once done your scores will improve.
Finally, if you’re reticent to open a credit card account because you’re afraid of getting into debt, you may want to consider a secured card instead. As long as the collateral is the same as the credit line, you’re safe. Even if you charged up to the limit you would not exceed the value of the cash on hold. These products are super easy to get. If you always spend less than 30 percent of the limit, pay in full and on time, your credit reports and scores would glow.
However, if you really don’t want to use a credit card ever, for anything, that’s totally fine! Clearly you can still develop a credit score without it.