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How to Build Credit Without a Credit Card

How to Build Credit Without a Credit Card

Missed payments and the subsequent sale of the debt to a collection agency can indeed be the reason for loan rejections, even if you closed the debt in the end.

But you may get declined for a loan not only because of late payments. For example, there may be errors in your credit history or you do not meet the criteria of a particular bank.

What causes a loan to be denied?

Even a bank cannot always say for sure why they did not approve a loan for someone. Any application for a loan is evaluated by a special algorithm – scoring. It checks data from the credit history, information about the income of a potential borrower, as well as his or her personal data. Each bank has its own criteria in this algorithm. The result of the scoring is included in the credit report – all submitted loan applications and lending decisions are reflected there.

The bank is not obliged to state the exact reason for the loan rejection. But general information about this reason shows on the credit report, for example, as follows: credit history, credit overload, bank credit policy or inaccurate information. This sometimes helps to at least roughly understand why your request has been rejected.

In addition to missed payments, information about your income or about you can influence the decision of the bank. For example, if you want to get a $10,000 loan for 1 year but your monthly income is only $1,000, you will get declined.

Finally, your request may be rejected if your credit report contains errors.

Can delinquency negatively affect credit history for several years?

Late payments and especially the sale of debt to a collection agency really affect the ability to take out new loans. The reason is obvious: the bank is worried that you will not return the money.

Moreover, credit institutions understand that the sale of debt to collectors is not a mandatory but an extreme measure. Once the borrower brought the situation to the collectors, no matter why. This is a bad feature.

If you have been declined for a loan because of missed payments, the “borrower’ credit history” may be indicated as the loan rejection reason.

Let’s say you paid off your debt to a collection agency four years ago. But some banks are wary of borrowers who default, even if several years have passed since then. If you basically had few loans or this one was the only one, the bank will not have enough information to analyze your payment discipline. Therefore, it is easier for them not to take risks but to lend money to another borrower.

How to check your credit report

It would be right to talk about how to find out your credit score for free. Knowing it is worth at least in order to keep track of whether you have credit card debts or whether you are registered with collection agencies. In addition, knowing your credit score will help you roughly imagine whether you will be eligible for a good interest rate.

So, the easiest way is to apply for a credit card. Application is completely free, you just need to have a SSN (social security number) and, of course, have an open credit card. But you should remember that if you have just opened your first credit card, information about this will not show on your credit report immediately, but after 1-2 months. So, you can track your credit score in two agencies – TransUnion and Equifax. Unfortunately, their credit score information may differ. Why this happens is not very clear. In addition to the score, here you can see your credit card utilization (i.e. how much you use credit funds), the length of your credit history and other factors that affect your credit score. Information on the credit card is updated every 7 days. It is a fast and easy way.

Some banks, such as Discover, American Express, Bank Of America, also give you the opportunity to find out your credit score – if you have a credit card in this bank. Alas, the bank score is also different from the score on the credit card. Such “swings” can probably be explained by the fact that this very score is calculated according to different formulas. You’d better focus on the smallest.

You can also exercise your right to receive a free credit report. This is possible every 12 months. You can get a report from 3 companies. In addition to Equifax and TransUnion, you can make a request to Experian. This site is recommended by the government as the only authorized site for such reports. Such a report will be useful to you when taking a car loan or a home loan, and even when renting a house (because realtors will kindly provide it to you for $20-$50 per person).

It is worth mentioning that a credit report and a credit score are not the same thing. A credit score is a number and a report is a document. A credit report is a broader concept and is not required so often. A credit score also allows you to periodically monitor your financial condition. To apply for a small loan, it is quite enough to know your credit score, and the opportunity to get a credit report is left for really important circumstances.

10 tips to build your credit fast

If there are no mistakes in your credit history, there are still some legal ways to improve your credit.

Repay all debts

Closing all existing loans is the first thing you need to do. Start with large loans and they pay off smaller ones. This will improve your credit history.

Apply for a store or gas station credit card

If you visit the same places, such as a convenience store or a gas station, you can apply for a credit card there. This is a convenient way to build a credit history since you often pay there.

Become an additional user

If your parent or spouse has a good credit history, you can become an additional user on their credit card. Technically, it turns out that your credit history has already begun from the moment a relative’s credit card was issued.

Permitted overdraft

An overdraft is a short-term revolving loan for debit bank cards. The amount of the overdraft will be set by the bank based on the frequency and amount of replenishment of the card.

Information about connecting an overdraft is reflected in the credit history. In your case, this will help improve your payment performance (if you make payments on time). You will have to use the overdraft for at least six months.

Payday loans

Payday loans are also known as credit builder loans – these are loans taken to improve credit history. Most often these are small-dollar, short-term cash loans that can be used for whatever purpose. Such loans usually come with high interest rates but if you pay off the loan in a timely manner, information about payments will appear in your credit history. It is very easy to get approved for a payday loan as borrower eligibility requirements are relaxed. You only need to have a source of permanent income and a bank account in your name.

Many consumers use online referral services that match potential borrowers with reputable lenders that offer beneficial terms. Apply online 24/7 if you think a payday loan is the best option for you.

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Secured loans

Making a loan secured by a car or real estate is one of the possible lending options that will help improve your credit history. You can pledge property in banks (almost all organizations issue secured loans) or individual microfinance institutions.

Personal loans

Some banks are ready to issue a personal loan to an individual with no credit checks, but the interest rate will be increased. A good option is to apply for a loan from a bank you already cooperate with. Financial companies make concessions for payroll clients because they can track the receipt of funds to a person’s account from the employer and thereby analyze his or her solvency.


Refinancing is the process of taking out a new loan to pay off an old one. At the same time, the terms of the new loan are more favorable – a lower interest rate or additional bonuses for the client.

How can you fix your credit history with the help of refinancing? If the reason for loan rejection is several existing loans, then you can combine them into one using refinancing. This service will help:

  • get money to pay off old debts;
  • lower the interest rate and relieve the credit burden;
  • combine several loans into one and not be confused with repayment dates;
  • receive additional funds (in excess of the debt amount).

You’d better resort to refinancing even before you miss payments. Another way to avoid a debt hole is to apply to the bank for restructuring. This is a change in the terms of the current loan.

Auto loans

Taking an auto loan is another effective way to prove that you are a trustworthy person. Many American car dealerships have special programs for people without a credit history. Taking a car loan and paying regular installments demonstrates your financial responsibility.


Debt restructuring is a process used by companies to change the terms on loans to make them easier to pay back. If you cannot cope with financial obligations, your life circumstances have changed – you fell ill, a child was born, you lost your job – submit an application to the bank immediately so as not to ruin your credit history.

How lenders decide whether to give you a loan

It happens that a person has an excellent income, but he or she is declined for a loan due to previous problems with repaying loans. Or the reverse situation: a borrower with existing loans and missed payments is approved for a new loan without any problems. These are the exceptions, but they do happen.

The bank makes decisions based on its own risk models and goals for further development. Some banks are ready to issue loans to borrowers with bad credit scores because they profit from volumes, while others are guided by the quality of borrowers. Depending on this, some banks make sure that there are no delinquencies in the last 6-12 months, while others check delinquencies for the last few years.

If you have already been declined for a loan in your bank, we suggest you’d better not apply for large loans right now – a mortgage or a car loan.

Set up an overdraft or apply for a payday loan and actively use these products for at least 6-9 months. Then check your credit report and credit score – it must improve.

Although we wrote that a credit score is a subjective assessment, it will help you at least roughly imagine what your chances of getting a loan are.