Are you wondering how you can build your credit?
When you look online, you’ll see that when it comes to building your credit, credit cards are recommended.
Many recommend opening a credit card account and making a handful of purchases every month.
Using your credit card for small purchases and paying off the balance in full each month helps to build credit.
A good payment history is established and you show that you’re managing your credit balances well.
Credit cards can help create a credit history but it can be tempting to charge more than you intend, leaving you struggling to pay high balances, in the end.
Is there really a way to build credit without being left in debt?
Yes, you can build your credit without being left in debt.
There are many ways to accomplish this. Instead of turning to credit card debt, take a look at these options instead:
1. Tackling Your Student Loan Debt
You can build your credit score by making on-time payments on your student loans!
Repaying your credit balances can help you build credit and it has the same effect as paying off your credit card!
Taking on additional debt is not required to build your credit.
Instead, tackle your existing debt to create a good payment history, which will help strengthen your credit score slowly over time.
Need help repaying your student loans?
Get a Free student loan assessment with a financial expert who can walk you through your next steps to becoming debt free.
Paying off your student loans is important and shows your financial responsibility.
The added effect of boosting your credit score is definitely a nice benefit.
2. Be Added as an Authorized User
Another often overlooked way of building your credit is becoming an authorized user on someone else’s credit line.
This is a great way to build your credit history if you have a family member or friend that can add you to their account.
The benefit of becoming an authorized user is, you can build your own credit history without the need of actually holding your own credit card.
Keep in mind though, if the primary cardholder does not make payments on time, your credit will be impacted.
Therese R. Nicklas, CFP, uses this method to help her kids build up their credit history.
She has excellent credit and asked her credit card company to add one of her children to her credit card as an authorized card holder.
After receiving the credit card in the mail, she actually destroys it!
This way, her child will get the benefit of being an authorized user without having to manage the credit card.
Nicklas explains that this practice allows a young adult to piggyback on the primary card holder’s credit to start building credit without having to borrow.
She also recommends that the primary card holder, may it be the family member or friend, give credit management advice, sharing the importance of managing strong credit.
She shares this as a great opportunity to take advantage of a teachable moment.
She even offers a credit clinic to her clients with pre-college age kids, sharing the importance of borrowing and student loans.
If you want to take this approach, you can talk to family or friends about helping to build your credit with this tactic.
3. Asking your landlord to report your rent to credit bureaus
Another way to build credit is show credit bureaus other ways you are managing your payments, like with your rent.
What’s the problem with this?
Your landlord will need to report your history of on-time rent payments to the credit reporting agencies.
This practice is not always done by landlords.
It takes more work but you can ask your landlord if this is an option for you.
What happens if they say no?
No need to worry, there are some services that offer help in this scenario.
Rental Kharma is one company that can help.
They will report your rental payment history and some other bills too, so you can show this positive history on your credit report.
One feature you’ll love about Rental Kharma, is that they have the ability to backdate your payment history up to 2 years!
This means there’s no need to start from scratch.
The credit reporting agencies will be able to see your payment history over time, right away, which will aid in building your credit!
Rental Kharma offers a $25 one-time fee for setup and a $7/monthly charge afterward. Is it worth it?
Definitely! It’s a cheaper way to help establish your credit than racking up additional debt.
That’s all that stands in the way of reporting your rent to the credit bureaus.
So you see, using a credit card is not required to build your credit.
Check out one of these options above.
Over time, taking the right steps will help you shape your positive credit history.
Want more tips like this?
Check this article from the My Financial Solutions Student Debt Informer:
Save Money While Paying Off Student Loan Debt: To Save or Not to Save?