Alternatives to Traditional Credit Cards for Building Credit
Building credit is essential to securing loans, renting apartments, and even getting certain jobs. One of the most common ways to build credit is by using a credit card responsibly. However, not everyone is eligible for a traditional credit card or may not want to take on the risk of high-interest rates and fees. Here are some alternatives to traditional credit cards for building credit:
Secured Credit Cards
A secured credit card works similarly to a traditional credit card, but requires a deposit as collateral. Typically, the deposit is equal to the credit limit on the card, and the cardholder can use the card just like any other credit card. Secured credit cards are a great option for those who are new to credit or who have bad credit, as they are often easier to obtain. Additionally, responsible use of a secured credit card can help build credit just like a traditional credit card.
Authorized User on Someone Else’s Credit Card
If a friend or family member has a credit card with a good payment history, they may be willing to add you as an authorized user. As an authorized user, you can use the card but are not responsible for making payments. However, the primary cardholder’s payment history will be reported on your credit report, which can help build your credit. It’s important to note that being added as an authorized user can also negatively impact your credit if the primary cardholder has a poor payment history.
Credit Builder Loans
A credit builder loan is a loan that is designed to help build credit. Unlike traditional loans, the money is not given upfront. Instead, the borrower makes monthly payments, which are reported to the credit bureaus. Once the loan is paid off, the borrower receives the full amount. Credit builder loans are a great option for those who need to build their credit but may not be able to obtain a traditional loan.
Retail Store Credit Cards
Many retail stores offer their own credit cards, which can be used only at that store. These cards are often easier to obtain than traditional credit cards and may have lower credit limits. Responsible use of a retail store credit card can help build credit, but it’s important to be aware of the high-interest rates and fees that these cards may have.
Building credit is essential, but traditional credit cards are not the only option. Secured credit cards, being an authorized user, credit builder loans, and retail store credit cards are all alternatives to traditional credit cards for building credit. No matter which option you choose, responsible use is key to building and maintaining good credit.