For most of us building a credit history is synonymous with owning a credit card. Since most of us will need credit sooner or later, a credit card has become an invaluable asset to get us where we want to go. But is it the only way, or even the best way for that matter? Let's look into other ways to build a credit history and see how they compare with the credit card as effective credit building tools.
The question most people are probably asking at this point is "How in the world would anyone not have a credit history?" and it's a fair question. One reason is that, unlikely as it may seem, an estimated 26% of Americans didn't own a credit card (AARP: Survey on Credit Card Use) in 2012. There may also be times when you can't get a credit card due to a bad credit record (after a bankruptcy, for example). Many of compulsive shoppers simply don't trust themselves to own a credit card.
Then there are those who like a well-off friend of mine, never had a need for credit. Since she always paid all of her purchases in full, including when she bought her house, she never built a credit history. After all, she never had any debt, not even revolving debt. When she recently tried to get credit, she was denied on the basis that she had no real credit history.
How to fix your credit score without using a credit card
Sign up to a credit bureau. A non-traditional credit bureau like PRBC can provide one of the best ways to build credit. Payment Reporting Builds Credit (PRBC) is an FCRA compliant national data repository that records the way your bills are paid. You will have to register a minimum of 3 accounts for which you get billed monthly (such as rent, phone bills, utility bills, etc.). If you want to build a high score, I suggest you add all of your regular bills. This credit bureau takes all of your payment history into account. It's also free to sign up to. While PRBC is a good place to start, it isn't as credible (yet) as the established bureaus, and a credit history from them may not be enough to convince all potential lenders.
Take a loan. The main credit bureaus (Experian, Equifax, Transunion) do account for mortgage, personal loan and car loan payments. If you have taken out personal loans, car loans or a mortgage then then make sure your payments are being reported to the big credit bureaus as on-time payments will build credit history. Of course if you can get a credit card, you can build a credit history with these bureaus much faster as you have a lot more loans and payments.
Get a secured or "credit builder" loan. Many credit unions offer secured loans and taking one out for the sole purpose of making your payments religiously is a fast way to build good credit. With a secured loan, also known as a credit builder loan, you make a deposit against the value of the loan. This makes this type of loans easier for people without credit to get. Basically you pay money into an account, then borrow it back at no risk to the bank. The downside of this method is that once the debt is paid off, your credit building spree will stop too. You'll have to get new secured loans regularly, and pay a lot of interest to keep building your credit history. Here again, if you can get a credit card you'll get the same or better results with a lot less work.
Become an authorized user on a credit saint's card. Riding on someone else's success is usually the easiest way to get started. If you can find someone with excellent credit who will add you as a user on their card (that's the hard part), you will be off to a smooth credit building start. This is a great option for students who want to start building a credit record with help from their parents.
Get a peer-to-peer loan. A recent development is the appearance of peer-to-peer lending websites on the financial scene. You get a loan directly from another person, instead of a bank or other financial institution. Some p2p loan sites do require you to have a certain credit score, but the requirements are drastically lower than those of banks. Make sure a p2p site reports to the major credit bureaus before getting a loan. After you do, make sure to make your payments right on time. Here again, you'll need to keep making loans and paying interest to keep building your credit score. With a credit card you can build credit without paying a nickel in interest (if you use it wisely).
While it's easy to debunk the "credit card equals a credit record" myth, I certainly can't deny that getting a credit card is the easiest and fastest way to build a good credit history. Even if you have very bad credit, you may be able to get a secured credit card. Check out GET.com's best credit cards for bad credit.
If you can use the hook and crook tactics I mentioned above to attain a fair credit score, you can then apply for a credit card for people with fair credit, like Capital One® Platinum Credit Card which comes with benefits like no annual fee, $0 Fraud Liability and up to $100,000 in travel accident insurance coverage.
Once you get your hands on a credit card you'll be off to a flying start as long as you make your payments on time. Paying punctually will not only help you to build a credit history but will also keep you interest free. So, in so many ways you can get by without a credit card, but life will be just that little bit more complicated.