6 Alternatives If You Can't Get a Credit Card

Your options after a credit card denial fall into two types. Debit cards, prepaid cards, and BNPL solve the spending problem while leaving your credit file as is. Secured cards, credit-builder loans, and rent reporting add to your report the next lender will read.

Which to pursue depends on why you were turned down in the first place. And the denial letter must give the reason within 30 days.

6 alternatives for building credit

If your goal is to build credit from scratch or repair a rough patch, each of these alternatives report your payment history to the bureaus, and several are designed specifically for people who've just been turned down.

1. Credit-builder loans

A credit-builder loan is like an installment loan in reverse. The lender puts a loan amount that’s often $300 to $1,000 into a locked savings account. You make monthly payments, and you get that money back at the end of the term. Each payment gets reported to the credit bureaus.

You’ll pay interest and typically a setup fee, so you get back less than you put in. But what you’re buying is payment history.

2. Credit-building accounts

A credit-building account is a revolving line of credit you use at specific retailers. You use the account like a credit card, and the creditor reports your balance and payments to the credit bureaus. The Kikoff Credit Account works this way: There's no hard credit check to sign up, and your payments report to all three credit bureaus.

3. Secured credit cards

A secured credit card works similarly to a traditional card, but it’s secured by a security deposit that often becomes your credit limit. These cards are designed for people with low credit scores or thin credit histories.

Many card issuers offer the chance to upgrade to an unsecured account with a history of on-time payments.

4. Rent reporting

Rent is the biggest payment most people make, and for the majority of renters, it does nothing for their credit. The Urban Institute found only around 7% have rent payments actively reported to the bureaus.

Many third-party rent reporting services are filling the gap by reporting your payments to one or more of the credit bureaus. Kikoff Rent Reporting is one of them, reporting verified monthly payments to Equifax and TransUnion, with the option to add up to two years of prior rent for a one-time $50 fee. And there's nothing your landlord needs to do.

5. Authorized user status

As long as their issuer reports authorized users, being added as an authorized user on someone else’s card puts that account on your credit reports. But it only helps if the account is paid on time and the balance stays low.

Call the issuer and ask whether they report authorized users, and to which bureaus.

6. Credit union loans

Some federal credit unions offer small payday alternative loans of up to $2,000 accessible to borrowers with lower credit scores, with interest rates that are capped at 28% by federal law. Some also offer share-secured loans, which use the money in your credit union account as collateral or other secured loans backed by an asset, like a vehicle.

Read more >> How to Build Credit Without a Credit Card

Alternatives to credit cards for spending

If you're looking for a way to make purchases other than cash, here are some other options to consider.

Debit cards

If you qualify for a bank account, a debit card pulls straight from your checking account. Approval doesn’t depend on your credit score. Banks check ChexSystems instead, which tracks your banking history rather than your borrowing.

The limits are that you can only spend what’s in the account. And if you’ve opted into overdraft coverage, going over can cost $35 each transaction. (You can turn that coverage off, which means declined purchases instead of fees.)

Debit activity isn’t reported to the credit bureaus, so spending can leave your credit file just where it is.

Prepaid cards

A prepaid debit card allows you to spend money you load directly onto the card. It's similar to a traditional debit card, but it may offer easier approval if you don't qualify for a bank account. Watch for fees on activation, monthly maintenance, cash reloads, and ATM withdrawals that can add up quickly. And like debit cards, this option won’t build your credit while you spend.

Buy now, pay later (BNPL)

A BNPL loan splits a purchase into equal installments, making it easier to afford larger online or in-person expenses, even if you don't have a credit card. BNPL loans usually involve just a soft credit check and charge no interest. Longer BNPL installment plans can carry an APR and may involve a hard credit check, so check the terms before you sign up.

Many providers still don’t report on-time payments to the credit bureaus, but the rules are changing. FICO offers two scoring models that read BNPL data, though few lenders use them yet. Still, BNPL balances you don’t pay can be sent to collections, and a collection shows up on your report whether or not the on-time payments did.

PayPal and digital wallets

You can link most debit or prepaid cards to a digital wallet like PayPal, Apple Pay, or Google Pay. Payments go through your phone or watch, online or at a register.

Wallets don’t require handing over your card to a merchant, and most require a fingerprint, face scan, or password for each transaction, which keeps your information secure.

But a digital wallet is a way to pay, not a line of credit, which means you aren’t adding to your credit profile.

Read more >> 7 Ways to Improve Your Credit Fast

Reasons you can be denied for a credit card

When you apply, the issuer looks at your credit score, your credit history, your income, and what you already owe. Denials usually come down to one of these reasons:

• Your score falls below the card's minimum
• Your credit file is thin, or you don’t have one at all
• You’ve missed payments
• You have too many recent applications
• A bankruptcy, foreclosure, repossession, or default is on your report.
• Your income is too low for the limit
• You have too much debt relative to your income

You’ll also be turned down if you're under 18, and if you’re under 21, you generally need independent income or a cosigner. Applying without a Social Security number will also result in denial, though some issues accept an individual taxpayer identification number.

Either way, a denial comes with rights. Within 30 days of applying, the lender must send notice with the specific reasons for denying you or tell you how to request them within 60 days.

If your credit report was a part of the decision, the notice must name the bureau and allow you to pull your full credit report from that bureau (separate from your free weekly reports). And if a score was used, the notice must include the score and main factors that dragged it down.

Read more >> How to Tell if You Have Insufficient Credit History

How to choose the right alternative for your situation

• Consider your credit history. If you have no credit history at all or want to rebuild your credit, look into secured cards, credit-builder accounts, and authorized user status to establish a positive payment history.
• Compare what each option ties up. A secured card needs a refundable deposit before you can use it, and a credit-builder loan holds your loan money until the term ends, while rent reporting, credit-building accounts, and authorized user status cost you little upfront.
• Check which bureaus each one reports to. If your goal is to build credit, make sure the credit cards, loans, and credit-building accounts you’re interested in report to all three credit bureaus.

Read more >> 6 Best Credit Building Apps for Those With No Credit History

Bottom line

A credit card denial isn't the end of the line. Several alternatives out there can get you through the checkout line, while others can help you build credit by adding to your payment history, which is 35% of your FICO Score.

The Kikoff Credit Account reports your on-time payments to Equifax, Experian and TransUnion, with no credit check to open one and plans from $5 a month.