How to build credit fast without a mortgage or a car
A mortgage is a powerful tool for building credit, but not everyone owns a home. Another path to a solid credit score is a car loan, however, not everyone drives. So how do renters without cars achieve respectable credit scores?
There are a number of ways to build credit. Not all of them include a mortgage or a car loan. Below are some of the ways in which people without homes or cars can build their credit effectively:
1. Using a credit card
One way to build credit without a mortgage or car loan would be to pay off your credit card bill. There are several ways to get a card without a previous credit history. Wells Fargo suggested finding yourself one or two department store or gas station credit cards. With these you can purchase items online, set up travel reservations, payoff larger transactions in installments and pull funds for emergency situations. Once you've begun making purchases, it is important to manage these cards very carefully. Pay at least the minimum due - more if possible - each month consistently in order to ensure you are building solid credit.
If gas stations or department stores aren't your style, Bankrate recommended a secured credit card, established when you deposit a given amount of money into an account. The account will serve as a safeguard for the credit card. If you deposit $500 into the account for your secured card, then you will be able to make purchases of up to $500. Usually, the minimum deposit for a secured credit card will range somewhere between $300 and $500.
2. Try a credit builder loan
One expert suggested trying out a credit builder loan, often extended to borrowers by a credit union in order to assist them with rebuilding their credit scores and reports, U.S. News and World Report explained. Sometimes community banks will offer them as well. The loan is approved for an amount that rarely exceeds $1,000. Rather than receiving the loan immediately, the individual then makes monthly payments to the bank or credit union while the loan sits in an account. After the loan is paid off, the borrower receives the funds plus interest. Just remember to make sure that the credit union or bank is reporting your payments in order to ensure they're contributing to your score.
3. Try self-reporting payments
James Miller, owner of Biltmore Wealth Advisors, suggested to U.S. News and World Report trying out a service such as PRBC, or Payment Reporting Builds Credit. PRBC utilizes alternative data in order to construe a better picture of a borrower's creditworthiness. The advantage to using PRBC rather than other self-reporting services is that it is free, according to Miller.
Data that factors into a PRBC credit score includes rental payments, subscriptions, cell phone bills, utilities, cable and internet charges and more. For individuals who'd like to get a loan but don't want to fall into a cycle of debt that could be brought on by credit card payments, or wait for - and pay off monthly chucks of - a credit builder loan, than self-reporting may be the way to go.
You don't need to a mortgage or a car loan to build a solid credit history. Renters, people without cars, and those who fall into both categories can rest easy knowing that there are actually a number of effective paths to a respectable credit score that anyone can take advantage of.