How to Build Credit Without Taking on Any Debt

how to start building your credit

If you ask how to start building your credit, you may come across credit cards as your first option. Many people advise taking out a card and using it for a few purchases each month.

Consistently charging small amounts to your first card and paying off the balance on time and in full each month is what helps build credit over time. You create a positive payment history and show you can manage a line of credit.

But while credit cards can help you develop a credit history, it’s too easy to charge more than you can afford and end up with a balance you struggle to repay. So what helps build credit without leaving you in debt?

How to start building your credit

There are plenty of options to explore that won’t leave you tempted to rack up debt that costs you money. Instead of just relying on credit cards, try one of these other ways to build credit instead.

Pay down your student loans

You can skip the plastic — instead, build your credit score and history by making payments on your student loans. Repaying your balances helps build credit in the same way using and paying off a credit card does.

This is debt you already have, so there’s no reason to take on more debt for the sake of building credit. As you create a positive payment history, your score should slowly increase over time.

Need help creating a repayment strategy? Consider the following resources so you can start knocking out your loan balances right away:

Obviously, paying off your student debt is important to do regardless of what you want to achieve with your credit. But it’s nice to know that your efforts to repay your school debt come with the added benefit of potentially boosting your score since you demonstrate your financial responsibility by paying down your loans.

Become an authorized user

If you’re ready to learn how to start building your credit, you can also become an authorized user on someone else’s line of credit. This could be one of the best ways to build your own positive history if you have a friend or family member (like a parent) that can help.

Becoming an authorized user allows you to build your own credit history without actually having your own credit card. But be careful: If that person fails to make their own payments, your credit will suffer.

Therese R. Nicklas, CFP, explains how she used this method to help her children build their credit. Because she had excellent credit and an active credit card, she asked her credit card company to add one of her children to her account as a card holder.

When the credit card arrived in the mail, she destroyed it — and says to never actually give the card to the person you’re trying to help build credit!

“What this does is allow a minor or young adult to piggyback on your great credit,” Nicklas explains. “They start building credit without ever borrowing.”

She strongly recommends the parent, family member, or even financial advisor offer a lesson in credit management and the importance of having and maintaining great credit to the individual you want to help build credit.

“This is a great opportunity to take advantage of a teachable moment,” she says. “When I have clients with pre-college age kids, I offer a credit clinic to them before they leave home. I teach them the responsibility associated with borrowing and we talk about student loans.”

You can approach your parent or other trusted individual about helping you build credit with this strategy. Make sure you each know your responsibility in the agreement before signing on as an authorized user.

Report your rent to credit bureaus

Other ways to build credit include finding opportunities to show credit reporting agencies that you can manage payments on money you owe. Your rent is a great example of this.

The only problem? Your landlord or the property manager of your rental home must report your history of on-time rent payments to credit bureaus.

This is added work for them and not something that all landlords do automatically. You can ask your landlord if this is an option, but if the answer is no, don’t worry — some services offer solutions specifically for this problem.

Rental Kharma is one such service. They’ll report your payment activity on your rent and some other bills so you can get credit — no pun intended — for your financial responsibility.

One of the best features of the service is that Rental Kharma can backdate your payment history up to 2 years. That means you don’t have to start from scratch, and credit bureaus can immediately see you’ve managed your bills over time. This is what helps build credit faster.

There is a one-time charge of $25 to get started and a $7 monthly service fee after that. Although other ways to build credit don’t necessarily cost you money, this is still a better way to go than taking on additional debt.

You don’t need to use a credit card to build your credit. Try one of these options if you want to explore your alternatives. With time and consistent effort taking the right actions, you’ll create a positive credit history and a good credit score.

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