Credit cards are often the first credit-building products that borrowers interact with. When managed responsibly, a credit card can be a simple and effective tool for creating a solid credit history and raising your credit scores.
But what if you don’t have a credit card, or are unable to get one? Can you still build credit without a credit card?
Key Points
- Credit cards offer a useful and effective way to build credit, but you don’t need one to build good credit.
- Other credit-building products and strategies are available, like loans, rent reporting services, and secured credit cards, among others.
- Building credit ultimately requires consistent and responsible spending and bill payment habits.
How To Build Credit Without A Credit Card
While credit cards are great products to use to build good credit, there are other products and strategies you can use to do the same:
Take Out A Personal Loan
Credit cards aren’t the only credit account that shows up on your credit report. Credit activity involving personal loans can also be reported. Your personal loan payments can help you build your credit history, which could help build a good credit score.
Get A Guarantor Loan
If you can’t qualify for a regular personal loan, you can opt for a guarantor loan. This can be particularly helpful for newcomers to Canada and students who haven’t built their credit yet.
When you get a guarantor or cosigner to co-sign a loan with you, they’ll be agreeing to take responsibility for the loan in the event that you (the primary borrower) default on the loan. This greatly reduces the risk for the lender and can help you get approved. Moreover, a guarantor can help you qualify for larger loans, lower interest rates, and overall better terms.
Like other loan types, guarantor loans that are properly managed can help you build good credit.
Use A Credit Building Programs
As an alternative to using a credit card, there are programs available that are designed specifically to help you build good credit, like KOHO’s Credit Building Program.
KOHO’s credit building program involves them opening a line of credit for you. However, you cannot access any funds from it. Instead, you’ll pay a small monthly fee (which varies based on your KOHO account plan), which they’ll report to the credit bureaus as a “payment”. These timely payments can help you build a good payment history steadily over time.
Become An Authorized User
If you don’t want to apply for your own credit card, you can ask to become an “authorized user” on someone else’s account instead. Your name can usually be added to the primary cardholder’s account via online banking, by request at the bank, or by phone directly through the credit card company.
Afterward, you can either use their credit card or you can be issued one of your own. While the primary cardholder is solely responsible for paying the total monthly balance, you can pay your portion of the bill depending on what you’ve agreed upon. Every payment that the primary holder then makes will be reported on both your credit reports, which can help build your credit profile.
However, it’s important to note that not all creditors report the information for authorized users, so it’s important to speak with the card provider and confirm whether they do.
Have Your Rent Payments Reported
Homeowners have the advantage of using their mortgage payments to help them build credit, so why not renters? While rent payments are usually not reported to the credit bureaus, there are rent reporting services available, like the Landlord Credit Bureau (LCB) and Chexy, that report rent payments to the credit bureau.
You can take advantage of these services to use your rent payments as a way to build a positive credit history.
Apply For A Secured Credit Card
A secured credit card is a great alternative to a traditional unsecured credit card. They’re easy to qualify for, and all you need is enough cash to make a security deposit, which usually acts as your credit limit.
Thanks to their flexible requirements, secured credit cards make great resources for those with bad credit or no credit at all. Each payment you make will be reported to the credit bureaus, which will help build your payment history.
Best Secured Credit Cards To Build Credit
| Annual Fee | Purchase Interest Rates | Min. Deposit | |
 Secured Neo Mastercard | $5/monthly | – 19.99% – 29.99% – QC: 19.99% – 24.99% | $50 |
 Secured Tims® Mastercard | $0 | – 20.99% – 26.99% – QC: 20.99% – 24.99% | $50 |
 Home Trust Secured Visa Card | 0$ or $59 | – 19.99% (no annual fee) – 14.90% (with annual fee) | $500 |
 Vancity enviro™ Secured Visa* card | $0 – $395 | 11.25% or 19.50 % | $500 |
Use A Savings Loan
A savings loan provides a way for you to set a pattern of good borrowing habits while growing your savings. With this type of loan, you don’t actually receive any funds. Instead, you’ll make payments to the lender according to an agreed-upon contract. Once you’ve made all your payments, the lender will return the money to you minus any interest and fees.
Every payment made is reported to the credit bureau which can help you build a positive payment history.
Dispute Errors In Your Credit Report
This option only applies to those with an established credit report, but it is technically a way of increasing your credit score without using a credit card. Your credit score is directly calculated from the information in your credit report, so any errors could have a negative impact on your score.
Make a habit of checking your credit report at least once a year. That way, you’ll be able to catch any errors and dispute them before they affect your scores too much. You can check your score for free from a variety of online resources, like Loans Canada’s CompareHub.
Tips On Borrowing To Improve Your Credit
Using credit products may be a great way to build a positive credit history. However, adding debt can be potentially harmful to your credit score if you’re not careful. If you plan to borrow money and pay it back as a way to build good credit, consider the following tips:
- Borrow Only What You Can Afford – No matter which credit product you’re using, be sure to borrow an amount you can comfortably afford. This will make it easier to make payments and avoid racking up too much debt.
- Track Your Spending And Stay On Budget – Many people have trouble with overspending and staying on budget. This can make it difficult to pay your bills and keep up with payments, which can make it hard to establish a good credit history. Credit cards are a tool to build credit, but they can also ruin your credit if you don’t use them wisely.
- Always Pay Your Bills On Time – Making timely bill payments is probably the most efficient and effective way to build good credit. Ensure you make at least the minimum payment amount to avoid any late payment penalty fees, which can add to your debt. But ideally, you should be making payments in full to avoid carrying over balances and increasing your credit utilization ratio.
Factors That Affect Your Credit Score Calculation
Credit score calculations typically involve the following factors:
Payment History
Consistent, timely bill payments can improve your credit scores, while late or missed payments can negatively affect your credit. Your payment history holds the most weight in your credit score calculation, so you’ll want to ensure all bills are made on time every billing cycle.
Credit Utilization
Your credit utilization ratio — which refers to your balance versus your available credit — is another important factor that influences your credit scores. Ideally, you’ll want to keep this ratio less than 30% to help improve your credit.
Credit History
The length of your credit history refers to how long you’ve had your credit accounts. Credit score calculations include the average age of your credit accounts. The older your accounts and the longer your credit history, the better it is for your credit scores.
Credit Inquiries
Whenever a lender pulls your credit file, this is referred to as a hard credit inquiry, which can hurt your credit score temporarily. Too many hard inquiries can be particularly harmful to your credit score, so you should avoid applying for too many credit products in a short period.
Public Records
If you’ve had a history of bankruptcy, consumer proposal, or collection accounts, these will be noted on your credit report and will negatively affect your credit score.
Can I Have More Than One Credit Score?
In Canada, there are two major credit bureaus: Equifax and TransUnion. If you look at your credit scores from each of these bureaus, you may notice slight differences.
That’s because each bureau may have slightly different information reported to them, as well as different credit scoring models used to determine credit scores. While credit scores are generally calculated based on the above-mentioned factors, there are some variations in how they’re calculated. For this reason, you may see different scores with each credit bureau.
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 scores is too risky, or you simply can’t get a credit card, then any of the above alternatives may be worth considering. Ensure you use the product or strategy you choose wisely to build a positive credit history.
