Credit cards are useful – sometimes – but you also lose that feeling of “pain” when paying for things. Dave Ramsey points out a study from MIT and Stanford that shows people feel “pain” when using cash and eliminating this feeling when using credit cards.
So, if you’re using credit cards, you’re more likely to spend more money.
The good news is that you don’t need a credit card to build your credit – there are other ways.
6 Best Ways to Build Your Credit Without a Credit Card
Credit history is important. When you have good credit scores, you’re able to save money on:
- Car insurance
- Homeowner’s insurance
Creditors view you as less of a risk when you have good credit. And a few of the ways that you can build your credit without a credit card are:
- Take out a loan: Debt isn’t optimal, but people still carry it. If you don’t want a credit card, take out a personal loan. If you make payments on time, you’ll build your credit without the high and fluctuating interest rates of credit cards.
- Get credit for your rent: Do you pay rent or utilities? If so, these items never show up on your credit report, although they should. If you’re making these payments, you can hire a third-party company (like Rental Kharma or Rent Reporters) that report these payments to credit bureaus.
- Get a secured credit card: A secured credit card is not like your traditional credit card. These cards require you to give money to the creditor as collateral. These funds dictate your credit limit, build your credit history and help you create good financial habits because you can’t spend more than what’s on your card.
- Take out student loans: If you’re going to school and need to take out a loan, non-private student loans are easy to get and will help you build your credit. These federal loan options can build your credit when you make payments on time.
- Auto loans: If you’re preparing to buy a car, an auto loan may be a good option for you. You’ll need to show proof of income, and the lender will look at your credit score. One trick is to purchase an inexpensive vehicle, with a good amount of money down, to lower the risk to the lender.
- Piggyback method: The piggyback method is a risky one, so it isn’t ideal if you’re financially irresponsible. This method requires you to have authorized user status on someone else’s credit card. You’ll use the person’s credit card and get credit for repayment. Parents often do this to help their kids build credit fast.
What to Do When Using Credit Cards?
If you’re using credit cards or get enticed by cashback rewards, you should:
- Pay off your card every month – only 45% of people do
- Pay more than the minimum monthly payment when you can’t pay in full
- Only use your card in emergency situations
Credit cards aren’t inherently bad, and they can help you build your credit, but you’ll also be paying interest on the purchases you make. You can use the tips above to build your credit without using credit cards in the process.