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Q: I just graduated from high school and I’m now working full time. I know I need to establish some credit. But I honestly don’t trust myself with plastic. Is there a way to establish credit without using credit cards?
A: Good news—you can build credit without ever owning a credit card!
Besides credit cards, any other type of credit can help you build up your credit score, as long as the creditor reports to one or more of the credit bureaus.
Some loans are hard to get without credit, such as a mortgage or car loan. You can, however, get a federal student loan without having any credit history. This is a good way for students to start building up their credit without digging themselves into thousands of dollars of credit card debt they don’t need.
Be careful, though. In most cases, student loans are not dischargeable in bankruptcy. Sometimes credit card debt is actually the lesser of two evils, so to speak.
You can also build your credit without even borrowing any money.
If you rent, you may already be building your credit without knowing it. Some landlords will report rental history to the credit reporting agencies.
Not all do, though. If you want to build your credit by paying rent, you’ll have to ask around for a landlord that does.
If you pay your rent on time for at least two years and have a steady income as well as a large down payment, you may even be able to land a car loan or mortgage without having any borrowing history.
Another alternative is to finance a purchase. For instance, many furniture stores offers 0% APRs to help you finance a new purchase. Even better, my experience has been that the offers will require you to pay a pro rata portion of your principal each month.
By the time your financing period is over, you will have paid off your loan — assuming you made all your payments. And you will have established good credit.