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How to Build Credit Without a Credit Card

Sandra MacGregor

Feb 12, 2021 9 min read

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How to Build Credit without a Credit Card
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    Building your credit score can seem like a daunting task. If you’re serious about getting your credit on track, you may not know how to start.  You might think you need to apply for a handful of new credit cards to rack up credit. While using a credit card is an excellent way to build up your credit score, it’s certainly not the only way. Here are some actionable ways you can build credit without a credit card:

    • Use and pay back a personal loan, such as an car loan

    • Use a secured card

    • Become a co-borrower on a credit card

    • See if your landlord uses rent reporting services

    Use a Personal Loan

    A personal loan can be one of the best ways to build credit. Your credit score is impacted by many factors, including: 

    • Your payment history

    • Your credit utilization ratio (how much of your available credit you use)

    • Your credit history 

    • Your credit mix 

    When you take out a personal loan, it will be recorded on your credit report by Canada’s credit bureaus (Equifax and TransUnion). They record information such as what kind of credit accounts you have open and whether you make timely payments towards your credit accounts and other bills.

    A personal loan can help you increase your credit score because it can help you demonstrate good payment history, build your credit history, and increase your credit mix. The major caveat is that a personal loan will only help you if you make your payments on time and you pay off the full loan amount. 

    It’s also important to note that not all forms of loans will build credit scores. For example, a loan from your mom won’t be registered with a credit bureau and thus won’t enhance your credit score. The kinds of loans that can influence your credit score are listed below.

    Credit Builder Loans

    Credit builder loans are not the most common type of loan in Canada, but they’re a smart way to build credit. They are specifically intended to help you build credit rather than to lend you money upfront. Here’s how they work.

    Instead of loaning you money outright, the lender will set aside the money into a secured account. You’ll still make payments on your loan even though you can’t access the money. In the meantime, your payments are reported to a credit bureau. This will help you build your credit history and increase your score. At the end of the loan period, you’ll get access to your secured loan money. 

    Some credit builder loans also allow you to earn interest on the money in the secured loan. Not only is a credit building loan a great way to up your credit rating, it’s a fantastic way to hone your money-saving muscles. Credit builder loans tend to have lower interest rates than other personal loans and can be easier to access if you have no credit history or a low credit score. If you're new to Canada, haven't used credit in the past, or are recovering from an insolvency, credit building programs can help you rebuild your payment history and positively influence your credit score.

    Standard Personal Loans

    Standard personal loans are pretty straight forward. They can either be unsecured or secured, which means you put up some form of collateral to guarantee your loan payments. You can use personal loans to cover expenses like medical bills, wedding costs, home renovations, and more.

    Unsecured personal loans tend to have higher interest rates than secured loans because, without collateral, there’s a higher chance you could default on your loan payments. That said, making loan payments on time is very important, as they are reported to credit bureaus and can help you build credit. If you need to cover certain expenses and are looking for a way to build credit without a credit card, taking out and paying back a personal loan is a smart way to do so.

    Car Loans and Student Loans 

    Car loans and student loans are really just a form of personal loan. If you have your eyes set on a new car, responsibly managing a car loan can help you build your credit.  As long as you make payments on time and in full, both car loans and student loans will improve your payment history. They can also increase your credit mix and thus can contribute to a better credit score.

    Get a Co-Signer 

    If your credit score is zero, there are still ways you can get a loan. You may need someone with a high credit score to be your co-signer. This is a person who has agreed to pay your debt back if you’re unable to make your payments. Younger people and new immigrants typically start building their credit this way. Their parents or other relatives co-sign their new loan or credit card. 

    If you decide to get a co-signer for a loan, you should be very responsible about making your loan payments on time. If you miss your loan payments, this will also impact your co-signer’s credit score, so you should treat this agreement seriously. 

    Use a Secured Credit Card

    Secured cards are a good secured credit option and are another wonderful resource to build credit. Secured cards are slightly different than unsecured credit cards. They generally have higher approval rates than normal (aka unsecured) credit cards. This is because you place a deposit to secure funds on your card, which makes you a less risky borrower to the credit card provider. When you apply for a secured credit card, the credit card provider will require that you make a deposit, which will then become the credit limit of your card. If you deposit $500, you will only be able to spend $500, and there is no way you can exceed your credit line limit.

    Aside from the fact that the applicant has to provide collateral to guarantee payment of the card, secured credit cards pretty much function like unsecured credit cards. You make purchases without the need for cash, and some cards even offer cash back or rewards. Best of all, your payments on the card are reported to credit bureaus, which will help you build up your credit history and credit score.

    Refresh Financial's Secured Card is a great option if you're looking for a way to build credit history. No credit check is required, which is very helpful if your credit score is low and you're worried about your approval chances. On top of that, Refresh's annual interest rates are lower than similar products on the market. Using Refresh's Secured Card to make regular purchases (and repaying your monthly balance on time) can help you build credit history and achieve your financial goals.

    Become a Co-Borrower on a Credit Card

    Some credit card companies may allow you to be a co-borrower or co-applicant on a credit card. In this scenario, both of the co-borrowers are responsible for making payments, and the payment activity on the card goes on both individuals’ credit reports. However, being a co-borrower is not very common in Canada, and usually both applicants need high credit scores.

    But when you’re an authorized user or supplementary cardholder, you’re technically using someone else’s credit and card issuers (like banks) won’t be reporting your information to credit bureaus.

    Some resources might encourage you to become an authorized user on a credit card. This involves the primary card holder, usually a friend or family member, contacting the credit card company and authorizing you as another user on the card. You would also need to confirm with the credit card company that they do indeed report the activity and payments of a secondary user to a credit bureau. Keep in mind that, typically in Canada, the activity of an authorized user will not be reported to credit bureaus. This means that, even though you’re an authorized user on someone else’s credit card, your payments might not show up on your credit report and may not help you improve your credit score.

    Use Rent Reporting Services

    In Canada, rent payments have been traditionally excluded from being reported to credit bureaus. That has begun to change in the last couple of years with the creation of the Landlord Credit Bureau (LCB). The LCB is a rent reporting agency that reports rent payments to Equifax. If your landlord is a member of the LCB, your timely rent payments can help build your credit score and history.  We recommend that you contact your landlord and ask if they are a member of the LCB. If not, provide them with more information and emphasize the benefits it can provide you and other renters.

    Frequently Asked Questions About Building Credit Scores

    Here are other questions you might have about building your credit without using credit cards.

    Can my Debit Card be used to help build my credit score?

    No, using your debit card for purchases does not help you build credit. As much as debit cards seem to function like credit cards, the sad fact is that a debit card will not in any way build your credit. That’s because with a debit card, the money is taken directly from your own bank account. Unlike with a credit card, you are not borrowing the money but are rather using your own money. With a debit card, you can only spend money you already have. 

    Will Payday Loans build my credit?

    No, payday loans don’t help you build credit. Aside from extremely high interest rates, one main reason to avoid payday loans is that payday lenders do not usually report your loan or payments to a credit bureau. This means your payments won’t help you boost your credit score. They can, however, hurt your score if you don’t make payments. Payday loan companies do send default loans to debt collection agencies, and these agencies report your bad loans to credit bureaus.

    How long does it take to build my credit? 

    Building your credit score takes time, discipline, and consistency. Your credit score can improve within one to two months, but this depends on many factors. These include what financial incidents you’re recovering from and what steps you’re taking to recover.

    Your credit report is usually updated every 30-45 days with updated information on loan and credit card payments. As you build up a history of on-time payments, this will be reflected on your credit report and will help you improve your credit score. The sooner you get serious about upping your score the faster you’ll see improvements. 

    Bottom Line

    There are a lot more ways to build credit than just using credit cards. Loans and secured credit products can help you build up your payment history, which is the main factor that impacts your credit score. These products can also help you diversify your credit mix, which also influences your credit score. Each method we listed above has its own pros and cons but, no matter what methods you choose, you can start working towards building better credit today and improve your credit score in the near future. 

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