7 Ways to Build Credit — Without a Credit Card
Building credit is an essential part of achieving financial health, especially in today's economy where credit scores can significantly impact your ability to secure loans, mortgages, and even rental agreements. However, not everyone wants to or can use a credit card. Fortunately, there are alternative methods to build your credit score effectively. In this article, we will explore seven ways to build credit without relying on credit cards, the potential impacts on the financial markets, and what historical events can tell us about these strategies.
1. Become an Authorized User
One of the easiest ways to build credit is by becoming an authorized user on someone else's credit card account. This means that you get to benefit from their positive credit history without having to manage a credit card yourself.
- Potential Impact: This can lead to an increase in credit scores, which may result in more consumer spending and borrowing. Companies like Capital One (COF) and Discover Financial Services (DFS) may see increased business from consumers looking to improve their credit.
2. Use a Secured Credit Card
A secured credit card requires a cash deposit as collateral, which acts as your credit limit. By using this card responsibly, you can establish a positive payment history.
- Potential Impact: Increased demand for secured credit cards can boost the performance of banks and financial institutions that offer these products, potentially affecting indices like the Financial Select Sector SPDR Fund (XLF).
3. Take Out a Credit Builder Loan
Credit builder loans are designed specifically for those looking to build or improve their credit scores. The loan amount is typically held in a bank account until it’s repaid.
- Potential Impact: The rise in credit builder loans can contribute to better credit scores across demographics, increasing consumer confidence and spending. This could positively affect economic indicators and stock prices in consumer goods sectors.
4. Pay Rent and Utilities on Time
Many new services allow you to report your on-time rent and utility payments to credit bureaus. This can help improve your credit score without needing a credit card.
- Potential Impact: If more consumers start using these services, we may see a shift in how credit scores are calculated. This could lead to increased demand for housing and utilities, benefiting related sectors, such as real estate investment trusts (REITs).
5. Use a Co-Signer
If you need to take out a loan, having a co-signer with good credit can help you qualify and build your credit score at the same time.
- Potential Impact: A rise in co-signed loans might reduce risk for lenders, leading to more favorable loan terms and lower interest rates. Companies in the lending sector may experience stock price increases.
6. Report Your Bills
Some fintech companies allow you to report your regular bill payments, like phone bills and subscriptions, to credit bureaus.
- Potential Impact: This trend can democratize credit access, allowing more consumers to build credit. Financial technology firms such as Upstart Holdings (UPST) may benefit from increased consumer engagement.
7. Join a Credit Union
Credit unions often have programs to help members build credit through loans or other financial products tailored to those with limited credit history.
- Potential Impact: Increased membership in credit unions can lead to greater capital flow within local economies, boosting community investment and potentially benefiting local businesses.
Short-term and Long-term Market Impacts
In the short term, an increase in these credit-building activities can lead to a surge in consumer confidence and spending, affecting sectors such as retail and housing. In the long term, as more consumers build credit, we may see a stabilization in lending markets and an increase in economic growth.
Historical Context
Historically, similar trends have been observed when new credit scoring models were introduced. For instance, in September 2014, the launch of FICO 9 allowed for alternative data to be considered, leading to a notable increase in credit scores for many consumers. This resulted in a 10% increase in consumer credit availability in the following year, positively impacting the overall economy.
Conclusion
Building credit without a credit card is not only possible but can also have significant implications for the financial markets. As consumers adopt these alternative methods, we can expect to see a shift in credit accessibility, consumer spending, and ultimately, economic growth. Investors and analysts should keep a close eye on these trends to understand their potential impacts on various sectors and indices.
Potentially Affected Indices and Stocks:
- Financial Select Sector SPDR Fund (XLF)
- Capital One (COF)
- Discover Financial Services (DFS)
- Upstart Holdings (UPST)
By understanding these strategies and their market implications, consumers and investors alike can navigate the complex landscape of credit and finance more effectively.
