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Credit Building without a Credit Card

Credit is an important aspect of personal finances in Canada. It enables us to obtain financial products, such as a loan, credit card or mortgage. There’s a bit of a Catch-22 when it comes to credit. On one hand, if your credit isn’t the greatest, it can be challenging to get those financial products. On the other hand, without using financial products, you can’t build a good credit score. So what do you do? By the end of this read, you’ll know how to build credit without using most people’s primary source of credit, a credit card.

Credit basics

Before we can discuss building credit, you need to understand how credit works. In Canada, credit bureaus TransUnion and Equifax report on credit. Credit scores range anywhere from 300 to 850. The higher your score, the better. Scoring also comes with a credit report which details personal information and your credit history. 

There are five components that go into calculating a credit score:

  • Payment history (35%). This aspect communicates how effectively you’ve managed credit in the past. Mainly, making payments on time and in full. Plus, contributing more than the minimum payment.
  • Credit utilization (30%). The amount of available credit to you versus the amount of credit you’re using. The lower, the better. Though the credit bureaus do like to see that you’re using credit and that it’s not just sitting there.
  • Credit history length (15%). This is the amount of time you’ve been using credit. The longer, the better. 
  • Credit mix (10%). There are two types of credit; revolving and installment. The ratio of how much revolving credit vs installment credit you have is put into consideration when it comes to your credit score. For a good score, you’ll want to have both and be proficient at managing them both well.
  • New credit (10%). When a lender performs a credit check the credit bureaus are notified. When too many credit checks happen at one time it can cause your score to fall.

Why credit scores drop

The main reason credit scores drop is when debt is mismanaged by not paying debts on time and in full. For instance, missing multiple loan or credit card payments. At the extreme of this is incurring a judgment like bankruptcy or consumer proposal.

Another big reason for a credit score to drop is when someone maxes out the credit they have available. In addition, completing too many credit applications can negatively impact your credit. Finally,

Why it’s important to have a good score

Credit scores are an important part of achieving personal goals like buying a house. Having a good credit score means getting preferred interest rates when applying for new credit, or even getting credit at all. A bad credit score, at the very least, means spending a lot more in interest over the span of your life. In the more extreme, it can be a barrier to other things like certain jobs and living accommodations. It’s not uncommon now for landlords and employers to do credit checks before offering a contract.

How to build your score without a credit card

The most common method of credit building is through a credit card. That being said, if your credit is not the greatest, you may not be able to get a credit card to build credit with. Below are alternative strategies for building credit.

Secured credit card

A secured credit card is simply a credit card that requires a security deposit in order to use it. The credit limit will be equal to the amount of your deposit. Usually, deposits are somewhere in the range of $500 to $1,000. Fortunately, there’s no annual fee in most cases. By using it to pay bills and other day-to-day expenses borrowers are proving they know how to use credit wisely. However, if they fail to pay off the credit card the creditor can seize the deposit as payment. Secured credit cards report to the credit bureau. Once the borrower’s credit score has improved, they can move on to opening up a regular credit card. 

Buy Now, Pay Later

Buy now, pay later services allow you to make purchases and repay the amount in installments. Under some circumstances, this service is interest-free. Examples of such services include Afterpay, Sezzle and Klarna. Some of these services report to the credit bureaus which can improve your credit. Before using one of these services, make sure they report to the credit bureaus and read the agreement carefully.

Credit builder loan

This type of loan is designed specifically to rebuild credit. With these loans, you don’t actually receive any money from the lender. You give the lender a small amount of money in accordance with a payment schedule. The lender holds onto the funds. At the end of the payment term, they give you the money back, usually minus a fee. This allows you to prove your creditworthiness. It also serves as an opportunity for you to learn positive borrowing behaviours. 

Authorized user

An authorized user is someone who has been added to another person’s credit card account. They are authorized to make purchases on the card as if it were their own. Although, the responsibility to repay the debt remains with the primary cardholder. The benefit is the primary account holder’s credit can have a positive effect on the authorized user’s credit. Of course, for this to be an effective strategy the primary account holder’s credit would have to be good. 


If you’re looking to apply for a specific loan or credit card, using a co-signer can help. A co-signer is someone who agrees to pay your debt if you fail to repay it for any reason. A co-signer will have to have good credit. Having a co-signer’s backing will increase a borrower’s odds of approval. Be wary of who you ask because taking on a co-signer responsibility is serious.

It’s important to remember that while these strategies do work, there is no better replacement than paying your debts on time and in full!

Rebuilding credit for a brighter financial future

Rebuilding credit can be challenging, especially without a hefty savings account or credit card. The biggest challenge is learning how to use credit responsibly and changing your previous habits. However, when done effectively over time, you will be able to build a brighter financial future.

Has your credit taken a hit because of struggling with keeping up with debt payments? Consolidated Credit can help! Reach out today for a consultation.

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