What if you have no credit card? What does that mean for your credit score and credit history?
This is a great question, especially because of how much confusion and misinformation there is surrounding it.
First things first, it’s great that you haven’t had to borrow very large amounts of money from a financial institution. If this is because you have done a good job at managing your finances instead of opting to get a high-interest credit card, be very proud as not too many people have. Now, about building your credit – many people are under the impression that the only way to build up a credit score and credit history is by effectively managing a credit card. While this certainly helps, it’s not the only way.
If you’ve never used a credit card and have been told that you likely have no credit history, you’ve probably never checked your credit score. You should. As a matter of fact, you should do this every year as you are actually entitled to a free credit report by law, and you can get one at AnnualCreditReport.com. Ignorance is not bliss, especially when it comes to your credit.
You may or may not know this, but if you have a savings or checking account, or both, they are probably already part of your credit report; as are your college student loans. Whether or not you have been paying them down on a regular basis affects your credit, so to ensure a good credit history, pay them down in a timely and consistent manner. If you have been doing that so far, you may have a good credit score and not even know it.
One way banks decide on whom to lend money to, is by attempting to gage an applicant’s level of financial responsibility by taking their personal decisions into consideration. For example, if you move out of your parent’s apartment and start paying your bills in-full every month, this will show the banks that you are independent and financially stable making you a desirable applicant. Make sure you are not solicited by collection agencies – that would be bad for you and your credit score.
Another option, one that is great for students, is to sign on as an authorized user on a parent’s credit card, unless of course they have bad credit, in which case – don’t. But because this arrangement usually requires interdependency, it’s not one that we strongly recommend for adults. This option was created for students trying to learn responsible spending under the watchful eyes of their parents, or for family members prone to spontaneous and irresponsible spending decisions.
Now that you’re aware of how to build your credit history and improve your credit score without a credit card, we hope that you put these strategies into practice.