If you want to build credit, don’t want to go into debt and don’t want to use a credit card, you’ve got a bit of a problem. You can definitely build credit without going into debt, but that generally requires using a credit card. There are plenty of ways to build credit without using a credit card, but they generally require going into debt. It’s frustrating, we know.
Things like utility payments and rent are sometimes reported to the credit bureaus and are factored into a few credit scoring models, but it’s far from the industry standard right now. There’s some good news, though: There’s a debt-free, low-maintenance, credit-building strategy you might not despise.
Step 1: Check Your Budget for a Recurring Bill
Most people have at least one consistent monthly expense. These are often subscriptions (like Netflix or a magazine) or small bills (like an insurance premium or a cell phone bill). Many of these can be set to automatic payments, and many of them can be paid with a credit card without an additional credit card processing fee. See if you can find one. Got it? OK, you’re not going to love this next step, but give it a chance before you freak out.
Step 2: Get a Credit Card (Wait, What?)
Yes, this strategy requires a credit card, but you hardly ever have to use it. You may never take it out of your wallet (and, really, you could probably just keep it locked up at home). If you don’t have a credit card, you’ll first want to check your credit score, which you can do for free on Credit.com, to see what you might be able to qualify for. There are credit cards for people with bad credit and no credit, but keep in mind that some credit cards carry annual fees or require a deposit in order to access a line of credit. Still, you can get a credit card for a relatively low cost (or for free), and if you pay off the balance on time every month, your purchases won’t accrue interest. (See? No debt.)
Step 3: Pay Your Small, Recurring Bill With Your Credit Card
Set up your automatic payment to hit your credit card.
Step 4: Pay Your Credit Card Bill
You can either manually pay your credit card bill as soon as the other bill payment hits, or you may want to set up another automatic payment, this time for your credit card. Make sure you’re paying it on time and in full each month, because that’s what’s going to build a positive credit history and keep you from going into debt.
Step 5: Check Your Progress
It’s easy to “set it and forget it,” and that’s sort of the idea here, but you don’t want to forget it and accidentally miss a payment because you haven’t updated your account or a payment didn’t go through as it was supposed to.
Some Extra Tips
When you’re deciding if this strategy is right for you (and it’s not for everyone), remember that part of what builds a good credit score is using as little of your available credit card limit as possible. So, if you have a very low credit limit on your credit card, the bill you choose to pay with it should be fairly inexpensive, if you want to get the most out of this strategy. Making sure this goes right requires attention to detail — it can backfire if you miss a credit card payment, max out the credit card or miss the bill payment and it ends up in collections — and it’s also a good idea to check your credit score regularly to make sure it’s having the effect you want it to.
Find the perfect credit card for you using our credit card finder tool.