So you want to avoid credit cards, eh?
Honestly, when you realize that a credit card is just a little plastic card with your name on it and an imprint of a banking institution you take away its power. Credit cards are not evil in and of themselves and really don’t have to be avoid like the plague if you can utilize discipline in your interaction with them.
Nonetheless, there are several ways you can build credit if you wish to stay clear of credit cards all together, but keep in mind that the best credit scores are comprised by successfully utilizing a mix of different credit types, including both revolving and installment accounts. The only way to build credit is to ensure that no matter what method you choose, the credit line is being reported to the three major credit bureaus. If not, you won’t be building credit; you’ll just be wasting time and possibly money.
Below are a few tips for building credit without conventional credit cards.
1. Get an installment loan.
Applying for a small installment loan from your local credit union or bank may be an ideal way to begin your credit profile. Keep the length of the loan short — no more than 24 months and make sure you are using the money to purchase something worthwhile. This method should help you build credit while limiting the amount of interest you pay. It also begins you with a small monthly payment you can consistently budget for.
2.Apply for a secured credit card.
Applying for a secured version of a credit card simply means you make a deposit to the issuing bank or credit union, and you get a card with a credit limit of that amount, similar to a prepaid card. Be careful with this method, however, because there can be many outrageous application and annual fees which eat away at the money you deposit. If you bank with one, your credit union would be a good place to look for a secured card. Try to obtain a card that has no application fee and a very low annual fee. You also want one that can convert to a regular, unsecured credit card after 12 to 18 months of on-time payments.
3. Become an authorized user.
If someone you trust already has a credit card or loan in good standing, you can ask to be added as an authorized userso that your credit will be linked with theirs. But only do this if you’re confident the person will pay the loan off diligently; any irresponsibility on their part will negatively affect your credit score for the life of the loan.
4. Build your own payment history.
Payment Reporting Builds Credit is an alternative credit bureau that gathers data on rent and recurring payments for cable, cell phone, insurance, utility and other bills. This may be beneficial when applying for some limited forms of credit, but it is not necessarily recognized by all lending institutions.
Contributed by Patrice Washington
Patrice C. Washington, The Wisdom & Wealth Money Maven, is founder of the Mindset & Money Master Class®, the proven step-by-step program that shows you exactly how to create the mindset and skillset necessary to achieve financial success.