How To Build Credit Without A Credit Card?

How To Build Credit Without A Credit Card?

Written by Priyanka Correia
Fact-checked by Caitlin Wood
Last Updated June 1, 2021

The discussion surrounding credit cards can sometimes be quite polarizing with many people singing their praises and others their criticisms. Obviously, it completely depends on how they are used; credit cards are great for their convenience and security but can also be misused. It’s much easier to use credit cards irresponsibly than responsibly and often the same qualities that make credit cards so great allow users to fall far into debt. Once a significant amount of credit card debt is established, it can be almost impossible to reverse the damages.

How To Build Credit Without A Credit Card?

Credit cards are often used to help rebuild credit scores but if you feel like this is in fact not the best option for you we’ve compiled a list of 6 other options to help you rebuild your credit without the help of a credit card.

Use A Personal Loan

Credit cards aren’t the only kind of loan that shows up on your credit history; in fact, it’s in your best interest to have several different kinds of loans appear on your credit report. Balance and variety are extremely important when it comes to rebuilding your credit. A personal loan is a good option when trying to get rid of credit card debt and build credit because it can be used to consolidate your credit card debt, making it easier to manage and pay. You’ll also have more affordable monthly payments as personal loans usually have longer terms and lower interest rates than credit cards. Moreover, if you’re having a hard time qualifying for an unsecured personal loan, you can opt to secure it with some form of collateral.

Adding Other Forms Of Credit

Responsibly handled mortgages, lines of credit or car loans can also help add variety and build your payment history. Just remember that going into debt when you know you won’t be able to make the payments on time and in full will hurt your credit. So only use this option when you know you can financially handle it. 

Getting a Co-Signer

Newcomers and students who haven’t yet gotten a chance to build their credit should consider getting a co-signer. A co-signer is someone who will take responsibility for the loan if you fail to make your payments. If you need help qualifying for a loan, a co-signer is a good option. However, be sure you can financially handle the loan before asking someone to co-sign, as missed payments will affect your co-signers credit as well. 

Lookout Watch Out For Hidden Fees In Personal Loan Contracts

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Have Your Rent Payments Reported

People who have a mortgage benefit from having it appear on their credit reports. Mortgages are a different kind of loan that adds variety to the credit mix; one of the five main factors that affect your credit score. Moreover, each mortgage payment adds to a person’s payment history, which is one of the most significant factors that affect credit. 

Similarly, if you have your rent payments reported, it will add to your payment history and credit mix. As such, if you rent a house or an apartment then you definitely want to look into having your rent payments reported to the credit bureaus. While options to have your rent payments reported are limited, you can do so through The Landlord Credit Bureau (LCB); a rent payment reporting agency that recently came about in Canada. Both you and your landlord must be a member of the LCB to have your rent payments reported to Equifax. Once your rent payments start being reported to the credit bureau make sure you always pay on time and in full.

Find out if you can pay your rent with your credit card.

Secured Credit Card

If you’re having trouble qualifying for credit in general, a secured credit card is a good way to get your foot in the door. They are easy to qualify for, all you really need is enough cash to make a security deposit which will also act as your credit limit. These funds increase your approval odds as they become collateral for the lender in the event you are unable to make your payments. 

Due to their flexible requirements, these make great resources for those with bad credit. Each payment you make will be reported to the credit bureaus, which will help build your payment history and improve your credit score. 

Learn how to switch from a secured credit card to a regular credit card.

Best Secured Credit Cards To Build Credit 

Annual Fee Interest Rates Min. Deposit
Refresh Financial Secured Visa $12.9517.99%$200
Plastk Secured Visa Credit Card $48 (+$6 monthly fee)17.99%$300
Home Trust Secured Visa Card0$ or $59- 19.99% (no annual fee)
- 14.9% (with annual fee)
$500
Vancity enviro Secured Visa Card$0 - $395- 11.25%
- 19.50 %
$500
TD Secured Credit Card$2919.9%$500
Capital One Guaranteed Secured Mastercard $5919.8%$75

Credit Builder Loans

Credit builder loans or a savings loan is a product to help individuals improve their credit and save money. When you apply for a credit builder loan, you’ll be given a loan that is held in a secured trust account. To access the funds, you’ll need to make payments until the loan is paid off. While you make payments, each one will be reported to the credit bureaus, thereby improving your payment history. Once you’ve “paid off” the loan, you’ll be able to release the funds and use them to make a purchase, pay off debt or put it towards your savings. 

This product is best for those who are unable to qualify for regular credit products due to bad credit. If you’ve gone through a consumer proposal or bankruptcy, a credit builder loan is a good option as there usually aren’t any credit checks. Moreover, if you’re new to Canada and don’t have a credit score yet, this is a good way to start building your credit. 

Are you new to Canada? Check out how to establish credit as a newcomer.

Double Check Your Credit Report

It’s important that you monitor your credit report and make sure that there are no errors on it. Your credit score is directly calculated from the information in your credit report so any errors could potentially have a negative impact on your credit score. Make a habit of checking your credit report once a year. That way you’ll be able to catch any errors and dispute them before they affect your score too much.

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Work on Becoming Debt Free

If you’re truly committed to improving your credit then one of the most effective things you can do is become debt-free. Paying off your debts will significantly improve your credit. There’s no trick behind this option, it’s as simple as paying off your credit cards and other debts that might be hurting your credit. This is especially important if the ratio between your debt and available credit is extremely high, meaning if your credit card is maxed out. Pay off your debts and you should see improvement in your credit in no time.

Don’t Close Old Credit Accounts

Some people believe that closing one or more of their credit accounts will help their credit because they won’t be racking up as much debt anymore. This isn’t a good idea because the age of credit accounts is taken into account when your credit score is calculated. You should keep old accounts open even if you’re not going to use them. The ratio between your available credit and used credit will be very low which will also help your overall credit health. Just make sure that your credit issuer doesn’t close down the account because it’s inactive.

Make sure you watch out for fraud and monitor the accounts even though you aren’t technically using them and if they have any fees associated with them it might be worth keeping them inactive.

Frequently Asked Questions

What’s the difference between a credit card and a secured credit card? 

Essentially, both a credit card and a secured credit card work the same way. The main difference between them is that a secured credit card is secured with a deposit which also acts as a credit limit for the card. They also often have lower interest rates and fees. Another major difference between a credit card and a secured credit card is that regular credit cards often have additional perks life travel insurance, purchase protection and a rewards system. 

Should I use a credit card or a personal loan for a big purchase? 

The answer to this highly depends on the cost of the purchase and your financial situation. For major purchases like a car, appliances and other high costs, a personal loan can often give you more time and lower monthly payments than a credit card. On the other hand, if you’re financially able to pay off a major purchase within the credit card billing cycle, then a credit card can be a good option as you’ll be able to earn reward points. 

How long will it take to improve my credit score? 

Your credit score is a direct reflection of your credit report, which is updated every 30 – 45 days. As you make payments, it will start to appear on your credit report which will help improve your credit. 

Bottom Line

Credit cards can be a great way to help rebuild your credit but they aren’t your only option. If you feel that using your credit card to build your credit score is too much of a risk or you’re looking for a different option then you should consider one of the above alternatives. They’ll be just as effective and you’ll have peace of mind that you won’t rack up too much credit card debt.


Rating of 5/5 based on 2 votes.

Priyanka is a personal finance expert at Loans Canada. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives. She has taken financial control of her life by using Mint to budget and track her expenses while growing her wealth by investing through Wealthsimple. She also believes in having an emergency fund, so she keeps a good sum of money in an easily accessible high-interest savings account. She also uses the American Express Cobalt Card to earn points on all her purchases, further fueling her savings goal. She also uses Loans Canada’s lender directory whenever she wants to compare rates from different lenders.

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