Building Credit Without Credit Cards

An individual's credit report contains information on all types of borrowing he has done, including not only credit cards, but also loans. If the credit report is empty, the individual does not have a credit score and will have trouble obtaining most types of credit. Although credit cards are one of the easiest ways to build credit, several other types of accounts appear on the credit report and help a consumer build credit.

Student Loans

Because credit card companies have tighter restrictions on credit cards for individuals under 21, one of the best ways for young people to start building credit is through student loans. Federal student loans, such as Perkins and Stafford loans, report payment history to the credit bureaus and do not require the student to have any credit history. Banks and credit unions also offer private student loans that can help students who have a creditworthy cosigner build credit. Some student loans require that the student make interest payments while in school, whereas others defer all payments until after graduation. Students should pay their loan bills every month and make extra payments whenever possible to build positive credit history. However, the loan might not help build credit history until they start making payments.

Secured Loan

People without credit history might have a hard time obtaining a traditional loan, such as an auto loan or mortgage. One alternative for building credit is to get a secured loan from a credit union. The borrower deposits money in a savings account or buys a certificate of deposit and obtains a loan for that same amount. The loan is secured by the deposit, meaning that the credit union can use the deposit to pay back the loan if the borrower fails to pay. Before getting a secured loan, the borrower should confirm that the credit union will report the payment history to all the credit bureaus.

Other Loans

After building some positive credit history, borrowers can often qualify for other types of loans. Two common ones are auto loans and mortgages. These loans are secured by the car or home, so the lender can seize the asset if the borrower does not make payments. Making regular, on-time payments on a mortgage or auto loan over a long time builds an extensive credit history for the borrower.

Credit Card Considerations

Although credit cards can help irresponsible borrowers get into more debt than they can handle, they will help someone build credit more quickly than is possible with just installment loans. This is because part of the credit score is based on the different types of accounts open, and a credit card falls into the category of a revolving account. Individuals can become authorized users on other people's credit card accounts to gain that credit history without taking the risk of being responsible for the debt. Another option for people who fear overspending is to get a charge card, which must be paid in full each month. A credit card with a low credit limit is another way to keep control of spending.