Updated: May 03, 2023

How to Build Credit Scores Without Getting a Credit Card

A credit card isn't required to build a good FICO credit score. Other loans such as mortgages, HELOCs, student loans and car loans have an effect too.
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The Fair Isaac Corporation may not be a household name, but their flagship product, the FICO credit score, is widely used by lenders throughout the United States to assess the creditworthiness of consumers. A high credit score can help you qualify for the best credit cards and loans with favorable rates, while a low score can make it difficult to access credit.

While many people turn to credit cards to build their credit score, it's possible to achieve an excellent score without even applying for one. This is particularly true for millennials, who may find it challenging to qualify for credit cards or prefer to use debit cards. Some millennials may also struggle to find a co-signer to help them qualify.

How is a Credit Score Determined?

The FICO Score is the most popular measure of creditworthiness in the US. It is used by 91 of the top 100 financial institutions in the country. The formula for determining your exact credit score is proprietary but Fair Isaac Corporation does provide some guidance on the factors that go into determining your score.

Payment History

Your track record of making payments on your debts on time makes up 35 percent of your FICO score, the most of any single factor. You can use this to boost your credit score by making sure you never miss a payment. Any missed payments will leave a large mark on your credit report, though the size of the mark depends on how late the payment is.

Equifax, one of the credit reporting agencies, reports that if someone with an excellent credit score of 780 makes one payment that is 30 days late their score could drop by as much as 100 points. The effect of a late payment is reduced as time passes, and the late payment is removed from your credit score after seven years.

The payment history part of your score also includes foreclosures, charge offs, repossessions, liens, and settlements.

Current Debt Burden

A significant 30 percent of your FICO score consists of the amount of money you already owe to creditors. This is often simplified to the credit utilization ratio, but it is more nuanced than one ratio.

Your credit utilization is the ratio between the amount of credit you are using and the total credit limits of your cards. The lower your utilization, the better it looks to lenders because it shows that you are not an impulsive consumer. The number of cards that have a balance compared to the total number of cards you have also has an impact on your credit score.

Even if you don’t have a credit card, this factor affects your credit score. If you have an installment loan like a car loan or a mortgage the amount that you have paid down compared to the amount that was originally loaned will impact your score. The more you’ve paid down, the better.

Length of Credit History

The age of your file with Fair Isaac makes up 15 percent of your credit score. The longer you’ve had credit, the higher your score will be because experienced borrowers tend to be better able to pay the money back on a consistent basis.

This factor has two categories, the overall age of your credit file, and the average age of your credit accounts. Lenders like to establish relationships with consumers who know their financial situation well so having a longer average age of credit is better. Taking out numerous short term loans indicates that you regularly have unexpected financial needs or that you are not likely to be a stable, long-term borrower.

Credit Mix

This is the only aspect of your credit that will be impacted by not having a credit card. The good news is that your credit mix only accounts for 10 percent of your overall score. The FICO score recognizes four types of credit: installment, revolving, consumer finance, and mortgage.

Installment loans include student loans or personal loans, consumer finance credit includes non-traditional loans such as payday or peer-to-peer loans, mortgages are home loans, and revolving credit refers to credit cards and charge cards.

Being able to handle different kinds of loans indicates that you know your financial situation well enough to be able to handle additional loans. While not having a credit card will affect your credit mix, having sufficient representation of other types of loans will be enough to score some points in this category.

Recent Applications

The final part of your credit score is your recent applications for credit. This category makes up the last 10% of your credit score.

Every time a lender pulls your credit report from one of the credit reporting agencies it is noted in your credit report and reduce your score. The effect on your score is reduced as time passes and the notes are removed after two years.

Lenders want to make sure that they are paid back and are hesitant to lend to someone who appears to be trying to take out multiple large loans at once. Applying for credit only when you need it is the best way to keep your score in this category high.

Building Credit without a Credit Card

If you don’t want to apply for your own credit card it is still possible to get a great credit score.

One option is to become an authorized user on someone else’s credit card. This gives you the chance to get used to credit and also starts building the age of credit on your report. The downside to this strategy is, even though you are not legally responsible for payments, if the primary cardholder misses a payment, it can appear on your report and impact your score. This means that you should only become an authorized user on a card held by someone who you trust to make payments on time.

Another option is to take out a credit-building loan from your local bank or credit union. You can use this type of loan to make a large purchase that you need to make and to begin building credit. Going to a local bank that you already have a relationship with is the easiest way to get one of these loans. They will be happy to provide you with an extra service that will increase your loyalty as a customer.

Peer-to-peer loans can also help you build a credit score but the interest rates tend to be high. If you can get a loan with a better rate elsewhere, you should pursue that route before looking for a peer-to-peer loan.

So long as these loans or authorized user agreements report to one of the major credit bureaus (Experian, Equifax, and TransUnion) any of these actions will let you start building your score. You can check your credit score at AnnualCreditReport.com to make sure that your loans are being reported properly. That website will also let you check your FICO credit score for free.

Once you have a line of credit or a loan that reports to one of the major credit bureaus, the most powerful force behind improving your score will be time. Make sure that you never miss a payment, and keep your balances on credit lines below 30% of their maximum to make sure your score increases as quickly as possible. Once you begin applying for new lines of credit, try to avoid doing so frequently. Instead, apply only for the loans of lines of credit that you truly need. This will show banks that you have a handle on your financial situation and that you aren’t trying to live above your means.

Unconventional Credit Agencies

One shortfall of the FICO score is that it does not take your bills into consideration when determining your credit score. Paying your electric or gas bills on time is very similar to paying your loan bills on time, but they still have no effect on your score.

Alternative credit agencies and credit scores have appeared that take these factors into account. One example is the Pay Rent Build Credit (PRBC) Score. You start by making an account on the website and providing information about your major monthly bills, such as rent, cable, electric, or gas.

PRBC will track your payment history and generate a credit score for you that takes into account all of your bills rather than just your loans. You can then use this credit score to prove your trustworthiness to lenders.

Another example of an unconventional credit score is the Experian RentBureau score. This score was created by Experian, one of the major credit reporting agencies in the US. It tracks your history of paying your rent on time, giving you a way to use that data to prove your trustworthiness to landlords and lenders.

Many lenders rely exclusively on the FICO score and will be hesitant to take these unconventional scores into account. Their main use will be when working with smaller community banks or landlords who want more assurance that you can pay your bills on time. While you can’t rely on them to get you a large conventional loan, they can be a good stepping stone to a smaller loan that will get you on the track towards building your FICO score.