A credit score is significant, even if you don’t intend to take out a loan. Prospective employers may check your credit before employing you, and landlords may perform a credit check before leasing you a property.
I’ve always compared maintaining a good credit score to a complex game. You often have to demonstrate responsible borrowing behaviour even without an intention of going into debt. Then there are those who play this so-called ‘credit game’ expertly, obtaining rewards credit cards for earning cash back and free travel, yet ensuring they fully pay off their balances each month. Some even leverage their excellent credit scores to bag zero percent APR offers on products, paying off the cash value over time.
Whilst I don’t oppose such strategies, I acknowledge they may not suit everyone. Some people prefer to steer clear of any form of debt, and that’s perfectly fine. If you are seeking ways to boost your credit without accruing debt, consider the following options.
SECURED CREDIT CARDS
Yes, credit cards do have a reputation for encouraging debt. However, secured credit cards are an exception and offer a practical solution for building your credit score. With secured credit cards, you provide a deposit equal to your credit limit. Effectively, you are borrowing money from yourself, not the credit card company.
For instance, if you put down $300 for a secured credit card, you’ll have a limit of $300, safeguarding you from spending more than your initial deposit. The key is to spend less than 30% of your limit each billing cycle. This kind of disciplined spending will allow the company to report your positive payment history to the three major credit bureaus. In case an unsecured credit card offer comes your way after a few months, there’s no obligation to accept it.
You can simply continue using your secured card or stop using it after a year while leaving the account open to maintain your positive credit history. It’s totally feasible to boost your credit score without incurring debt!
HOUSING AND UTILITY PAYMENTS REPORTING
Traditional credit scores rarely include payment histories for non-loan accounts like utilities or rent. However, failing to pay these bills can detrimentally impact your credit score if reported. To circumvent this, you can opt for an alternative credit score considering these monthly payments.
In compliance with the Equal Opportunity Credit Act, creditors must consider additional information about an applicant’s credit worthiness upon request. Utilize an agency that helps generate an alternative credit report, incorporating bill, rent or mortgage payment histories. Some alternative credit bureaus you could consider include Accurate Background, Certegy Check Services, ChexSystems, and First Advantage.
PAYING OFF CURRENT DEBT
If you already have debt, diving back into it just to enhance your credit score isn’t reasonable. Instead, concentrate on clearing your existing debts with regular, timely payments.
For instance, lowering your credit utilization by paying off a nearly maxed out credit card or loan can improve your score. Also, don’t close the account after paying off credit card debt, as this maintains the payment history on your credit report.
BECOMING AN AUTHORIZED USER
Another method of building credit without going into debt involves becoming an authorized user on someone else’s credit card, like a family member’s. As an authorized user, you can utilize the card without being obliged to pay off the spendings.
Parents might even add their children to their credit card accounts as authorized users, helping them build credit with minimal risks. As long as the primary cardholder manages timely payments, it can positively influence both of your credit scores.
OPTING FOR CASH PURCHASES
Building credit without accumulating debt might seem like a tough path since the system leans heavily on being a “good borrower”. If you’re not comfortable with this, you could consider opting out of credit. Although this might pose challenges when seeking a job or apartment, you can showcase your credibility through an alternative credit score, references or past bill receipts.
Consider a cash-based lifestyle, eliminating the need for worrying over your credit score. For large purchases like a home, this might seem difficult. But in cheaper suburban areas, consistent, aggressive saving can allow you to buy a home outright.
What are your thoughts on credit and going into debt?
