How to Build Good Credit Without Going Into Debt

Adult human beings need credit—good credit—to do lots of important adult things such as renting apartments and buying cars. We’ve been over this! But conventional wisdom says that the best way—nay, the only way—to build good credit is by accumulating debt.

That assumption about building credit through getting in debt feels backwards to me. For after all, the entire purpose of a credit score is to show that you’re worthy of loans. So you have to owe money so that you can then… owe money? And having debt, whether it be in the form of a balance on a credit card or just Ye Olde Student Loane, can lead you down a fucking terrifying cycle of overspending and interest that can eventually damage your credit, rather than helping it.

So let’s toss out the conventional wisdom. There’s got to be a better way! And there is. For it’s entirely possible to steadily build good credit without going into a day of debt.

So here’s what you do

Pay your bills.

More specifically, get yourself some bills and set up automatic payments on them. It can be your Netflix subscription, your internet bill, your electric bill, gas, water, the gym… whatever monthly service fees or subscriptions you have, set them up on autopay.

You were going to pay this bill anyway on a monthly basis, so hopefully it’s an amount you can afford to shell out every single month. Then you just pay it off, monthly and on time.

Yep. That’s it. That’s all you have to do.

Here’s why it works to build credit

Your credit score is based on a number of mysterious factors known only to Level 10 and above Financial Paladins. We wrote a whole-ass article on how they work in painstaking detail. But if you don’t appreciate the time and effort we lovingly pour into this blog (no no, it’s fine, we’re just your adoring internet aunties, slaving away to educate you!), allow me to summarize them here:

• Payment history: Do you have a proven track record of paying your bills on time and in full, every time? If yes, then you’re doing just fine.
• Amount owed: Also known as your “utilization ratio,” this is the amount of available credit you have vs. what you’ve used. You want to have a lot of credit available, and use only a little of it. So if you have a credit limit of $5,000 on a credit card, don’t use even close to your limit.
• Length of credit history: The longer your credit history, the better your score. This is one reason why it’s a good reason to keep your oldest line of credit open for as long as possible. See, for example, the credit card I opened at age 18 and still use to this day.
• Credit mix: It’s good to diversify with multiple kinds of credit. Credit cards, student loans, an auto loan, a mortgage, a business loan, you get it.
• New credit: Are you opening a bunch of lines of credit all at once? That makes you look shifty as hell.

If you only do one thing…

The most important of these factors is right there at the top: whether or not you pay off money that is loaned to you on schedule. Creditors are asking, “Do you pay your bills by the due date?” And if the answer is yes, then that is a positive factor towards your credit.

So even if the amount is tiny, as long as you’re faithfully paying it back on time, that will build you some good credit.

Since you’re paying a predictable amount in monthly fees like your Netflix subscription or your internet bill, it can’t hurt to put those monthly fees on autopay for the purposes of building good credit. You’re going to deduct the same amount of money from your bank account every month.

Do you need a credit card to build good credit?

It’s a little confusing, given how we discuss credit primarily in reference to credit cards, but there are multiple forms and sources of credit.

1. Revolving credit. Your basic credit card. You get a maximum you can borrow—your “credit limit”—and you can use up to the limit or not, as needed. Every month you either carry a balance or pay it off. If you carry a balance, you’ll have to pay a monthly interest fee.
2. Charge card. Basically like revolving credit only you have to pay the whole balance off every month. No revolutions here!
3. Installment credit. Your student loans, for example. They give you money, and you repay it with interest in regular installments over a set period of time while you’re working at Starbucks and ruing the day your high school art teacher told you to follow your dreams.
4. Service credit. This is where you make a deal with a service provider (the electric company, for example). They provide you with a service (electricity), and you pay for that service every month (your electric bill).

This technique of building good credit without a credit card or other debt is alllllll about service credit.

Not everyone takes out student loans or buys a car with an auto loan. Not everyone can get a credit card right away! But everyone can pay an electric bill. And no matter how you pay for it, as long as you are paying for it… it’ll count towards building your credit score in the long run.

Advanced technique

Once you’ve built up a decent credit score by paying your bills on time and in full, you might be eligible for a credit card. Condragulations! Here’s how to snag one.

From there, you can start doing some advanced credit moves. Like putting your service credit bills on your credit card. So instead of autopaying them directly from your bank account, you’re routing them through a second line of credit (the credit card).

That way, you’re juicing up your credit score in two ways through the same bill: first by paying your service bills on time, and second by paying off your credit card. This is literally why most of my bills are paid through one of my credit cards. Keeps that score real thicc and juicy—we’re talking over 800, y’all.

Walk before you run

If you’re new to the world of credit cards, it can be easy to let things get out of hand. Sure, you could use your credit card for all of your expenses and “just” pay it off in full every month. But what if you can’t pay it off in full? And what if that happens several months in a row? Very bad things, that’s what.

Remember that interest can work for the forces of darkness. If you lose control of your credit card spending, you could be racking up interest in enormous amounts. This’ll cost you twice. First, because you have to pay back that interest to the credit card company eventually whether you like it or not, and second because carrying a high balance on your credit card month to month actually hurts your credit, the very opposite of what you set out to do in the first place!

So start out with your credit building training wheels firmly attached and limit the amount of monthly expenses you put on your credit card to what you know you can definitely pay off by the due date. Once you level up (with “leveling up” defined as having a great credit score, a decent income, zero debt, and enough financial self control to keep your credit card spending in check), then you can move on to exciting tactics like using your credit card to build up airline rewards points or just using it as your basic emergency fund.

You are ready for great credit, you sparkling snowdrop of fiduciary excellence. And now you know how deliriously easy it can be to obtain!

An earlier version of this article was published in September, 2016.