Your credit score is a number that reflects how trustworthy credit reference agencies consider you to be when repaying loans and handling money. For the most part, a good credit score is required if you want to take out a loan in the UK. Naturally, this can be a barrier for people who have a poor rating or have a limited credit history. If you don’t fancy using a credit card, there are other ways that you can build a strong credit score to provide you with financial flexibility. Here are five alternatives to using a credit card for building a credit score.
1. Use buy-now-pay-later schemes
Your credit score reflects your creditworthiness across all types of borrowing. Therefore, buy-now-pay-later schemes can count towards your score. If you feel confident that you can make payments on time and repay the amount you spend, using a buy-now-pay-later scheme is a great way to bump up your score without a credit card.
However, it is important that you pay attention to the interest rate of the scheme you use. Just like borrowing from a credit card, buy-now-pay-later schemes will charge interest on the money that you borrow to make purchases. Over time, this interest can add up, and you can end up paying back significantly more than you initially borrowed.
2. Register to vote
In the UK, you can build your credit score by simply registering to vote! This is a great option for anyone who doesn’t want to borrow any money in order to build up a credit score. Registering to vote builds your score by confirming your name and address. Having these details confirmed makes you a stronger candidate for loans as it proves your credibility.
3. Put your name on the household bills
If your utility bills are in another person’s name, it may be worth adding your name to a few. Paying bills each month is a fantastic way of proving creditworthiness, and it can contribute to your overall credit score.
If you live with other people, you may want to consider taking a look at whose name is currently on the bills and make changes if yours doesn’t appear on any. Common household bills include gas and electric bills, rent, broadband and Council Tax.
4. Open a joint account
If you have a family member or partner with an excellent credit history, you could ask to open a joint account with them. Joint accounts contribute towards both of your credit scores, which means that you can benefit from their good spending habits.
If you’re worried about the implication of borrowing money on credit cards, this can also be a great way to ease yourself into the process. This is a popular option with couples and for parents who want to teach their kids how to handle credit.
5. Take out a personal loan
A good way to prove creditworthiness without using a credit card is to take out and pay back a small personal loan. Personal loans often have much lower interest rates than credit card debt, so they are a great option for those who don’t want to risk paying back way more than they borrowed.
If you choose this option, be sure to repay your loan on time and make larger payments when you can to pay it back quicker. The quicker you manage to pay back what you borrowed, the better your credit score will be.
If you need to build a good credit score quickly, there are a number of fantastic credit cards that are designed to build credit. Take a look at our list of top-rated credit cards for bad credit to learn more!
The post Don’t fancy using a credit card? 5 alternative ways to build a credit score appeared first on The Motley Fool UK.
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