We are deep in the middle of buying our dream house, ya’ll! It’s so exciting, but made more complicated by the fact that we don’t have credit – and we aren’t opening up a credit card just to “build” our credit score. That’s right, we are learning how to build credit without credit card debt.
Building credit is an important step to pay attention to as soon as you turn 18, because credit scores influence your interest rate. If your credit score is low, banks are going to want extra assurance that you will pay your loans, which might result in a higher interest rate – and thus higher monthly payments – for you.
You would think not having debt would show a bank that you know how to be responsible with money. However, as we go through the home-buying process, we are quickly realizing that all it truly says to a bank lender is “you have no idea how I handle money because I leave no trails!”
But not oops, because that would mean a mistake. No debt = not a mistake.
Building credit without credit card debt is actually really easy, if you plan ahead.
Check Your Score
First off, it’s a good idea to check your credit score on your own, so you have a rough idea of where you are starting off. Using a website like Credit Sesame is free and checking doesn’t hurt your score.
Again, it’s so frustrating that financial fitness and responsibility can also potentially “hurt” your credit. Dumb.
So, review your credit score on Credit Sesame for free and read over the report details. Is there any old or wrong information that could be lowering your score? Credit Sesame helps you dispute those charges to get them removed from your report.
This also gives you an opportunity to see if there are any outstanding payments that you might have missed that you could catch up on, which cleans up your credit score in the process.
We have rented our living arrangements since the very beginning, so we have a solid renter’s history. This means our lender can send a form out to our past landlords to see our exact payment history. The more payments you make on time, the more you show that you are reliable with your money.
Buy Under Budget
You know I’m all about living within your means, and it turns out that bank lenders also really like that. Our mortgage broker told me that lenders like to see that your monthly mortgage payment is less than what you pay in rent, so definitely try to stay strict with your budget when house hunting.
(And remember that most apartment complexes include charges like water, trash, and sewer into your rent, and you will have to pay those separately with a house payment.)
Aside from rent history, lenders also like to see a history of payments on other things, like utilities or student loans.
Since we have “no credit” (aka, we are debt-free), we had to submit our last few years’ worth of phone bill payments and car insurance payments.
This is when things like putting your bills on auto-pay is really super helpful, since you are building your payment history without even realizing it (and you’re avoiding late fees – so it’s a win-win).
If you’re living with roommates, consider splitting up the utilities and have one in each roommate’s name, to help build a payment history.
Still on your parents’ phone plan? You might want to get your own. Yes, it’s probably going to be more expensive than giving your parents $20 a month, but it establishes a record of payments in your own name. After years with other cell phone companies, we are very happy with Credo Mobile. We both have unlimited everything and pay just over $100/month, and they support a multitude of charities and non-profit organizations. Click here to take advantage of $200 off smartphones (or pick a free one) and 25% off line fees for two years.
Making your regular payments on your student loans also counts towards payment history, so make sure your student loans are in your name.
For us, both our student loans and our loan from our unfortunate month-long experiment with living in an RV showed up on our credit history, but both were too long ago to be counted on our credit report.
The Easiest Way to Build Credit Without Credit Card Debt
One of the easiest ways to build your credit without a credit card is by opening up a Credit Builder account, which is backed by a Certificate of Deposit (aka, CD).
A CD is essentially a savings account with a monthly payment, and it earns interest for the investor. After the term agreement of the CD is met (anywhere from one to three years, usually), the investor can withdraw the money saved. Credit Builder accounts are not actual CDs, but are loans backed by CDs. Your money is secured by FDIC, so there is no risk involved.
While many banks offer this on a local level, you might find this a limiting factor for your lifestyle. For instance, we have lived in four states in less than two years, and switched banks twice due to lack of local branches.
This is where a company like Self Lender makes the most sense. It is based entirely online, so you don’t have to worry about if you happen to move in the middle of your “loan” period.
Self Lender makes building your credit without credit cards accessible to everyone, regardless of income. Your monthly payment options start as low as $25 per month, and increase to $150 per month.
(I love to encourage self-improvement, so open your own Self Lender account now
to receive $10 from me!)
All monthly payments are reported to the three major credit bureaus. Payment history accounts for 35% of your credit score, which means your credit is steadily rising with your monthly payments (some reviews say their score increased as high at 60 points in just a few months!).
Current Payment History
Self Lender payments count as a current payment history, so you can open a new loan when you finish your first to continue building current payment history.
If you are planning to purchase a home in a year or so, you can open your Self Lender loan for a one-time administrative fee of just $15 and a monthly payment of $48. At the end of the year, you will get $545. Or you could save $150 a month (with a one-time fee of $12) and receive a check for $1,700 at the end of your loan term.
My favorite part of the entire process is that you get your money to work for you (building your credit) and you get the money back at the end! Not only are you saving money, you are quickly improving your financial future. You know how I’m a fan of my money working for me while I sleep, so of course this option is what I recommend to everyone.
Ready to open your own Self Lender account and build credit without opening a credit card? Start building your credit history today!
No one should have to suffer the consequences of a low credit score. Did you find this article helpful? Be sure to share it with your friends!