Getting and using a credit card is hands down the best way to build your credit. But if you don’t qualify for a card, you’re not locked out of credit altogether. All you need are alternative ways to demonstrate that you’re a responsible borrower.
Before you try to get a mortgage or car loan, start small. Explore your card options and card-free alternatives. Here’s how to start rebuilding your credit:
Consider a Different Card
Did you know there is more than one type of credit card? Just because you don’t qualify for a typical unsecured card doesn’t mean you don’t have a chance with another. A secured card, student card, or charge card is likely to be your best bet.
Secured and student cards are designed for people with no or poor credit history. They tend to have low credit limits and require a cosigner or cash security deposit. Just like regular credit cards, however, they report activity to the major credit bureaus.
Beware that secured cards may come with additional fees or a higher annual percentage rate than traditional cards. Always read the fine print before you open an account.
Add Other Payments to Your Profile
Lenders use your credit score to tell how likely you are to pay your bills. If you pay monthly rent, utility, streaming, phone, or internet bills, consider adding these to your credit profile. Consistently on-time payments, even if you don’t make them with a credit card, can raise your credit score.
Service providers must pay a fee to report these payments to the credit bureaus, so they typically do not. Third-party services can report them on your behalf, but pay close attention to their fee schedule. Some, like Experian Boost, are free, but only apply to a single reporting bureau.
If you don’t aren’t always on top of these payments, skip this step. Late or partial payments — again, even if they aren’t made with a credit card — will lower your score.
Become an Authorized User
If you aren’t yet ready to own any card of your own, ask to become an authorized user on a family member’s account. You’ll be able to piggyback on their account without being responsible for any debt incurred.
As an authorized user, you’ll be able to use their card like it's your own. Use the experience to learn how a credit card works. Ask to review the account holder's monthly statements and payment processes.
Just be sure that you only become an authorized user with someone who has good credit habits. This works particularly well for students whose parents have a good credit history. Beware that if the holder of the account you’re authorized to use misses payments, your credit score may also be affected.
Revive an Old Account
If you’ve used credit cards before and still have an active account, you can use them to help build credit. Before you start using the account again, it’s a good idea to let the company know that you’re doing so. Otherwise, the renewed card use may be flagged as suspicious.
Once you’ve spoken with your credit card company, make a small purchase you can pay off quickly. Ideally, make it recurring. Things like monthly payments for subscription services are perfect for this type of spending.
By using an old account sparingly, you can build your credit back up. Once it’s where you’d like, try reapplying for the card you actually want. Wait at least three months for the resumed card activity to show up in your score.
Find a Co-Signer
Depending on your age and credit situation, you may only qualify for cards with a co-signer. The Credit Card Act of 2009 put a limit on fees and added protections for younger potential card owners.
If the kind of card you need isn’t available to you, don’t be afraid to seek help. Ask a trusted family member to become a co-signer. Similar to an authorized user, a co-signer lets you “borrow” their credit in order to qualify for a card. Unlike the authorized user arrangement, however, you’re jointly liable for any debt incurred.
Be sure you have a strong relationship with anyone you ask to be your co-signer. Have a serious conversation about spending expectations, payment division, and your plan for managing the card. Make sure you’re on the same page before you apply for the card.
Take Out a Small Personal Loan
Some small personal loans are easier to qualify for than credit cards. If you don’t quite have the score you need for the card of your dreams, apply for a $500 loan. It just might be enough to put you over the line. Make sure you have the cash on hand to pay the loan back on or ahead of schedule.
What if you don’t qualify for a loan? As is true of credit cards, you can add a co-signer. Also as with the co-signed card, make sure you’re clear on expectations before you apply.
Not all personal lenders are created equal. Avoid payday lenders or other fly-by-night agencies, which tend to charge a higher annual percentage rate than banks. Keep an eye out for ballooning interest rates and aggressive collections protocols.
Missed payments and other damaging records will hurt your credit score less the further away from the event you get. Eventually, they will fall off your report altogether. Depending on the type of debt, total erasure may take anywhere between three and ten years.
Although it’s not ideal, you may simply need to wait to get the credit card you want. Think of this period not as a punishment, but as a chance to prove to lenders that you’ve matured as a borrower.
Not qualifying for a credit card is not the end of your credit journey. There are still plenty of things you can do to build credit and qualify at another time. And most importantly, you will have built all sorts of smart financial habits along the way.