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It is perfectly acceptable to avoid getting a credit card. Consumers can pay in full by cash, check or debit card and still build a positive credit history through other types of loans. According to a May 2021 Federal Reserve Report In terms of the financial well-being of US households, 83% of US consumers had at least one credit card by 2020, which could mean that 17% of US consumers manage without a credit card. Anyone can use cash to make purchases or get a debit card from a bank for convenience.
However, while there are ways to get rid of not having a credit card in the US, there are downsides to it. Here’s what you need to know if you decide to live a life without plastic.
Disadvantages of not having a credit card
Giving up credit cards can make it difficult to build a decent credit history with a good credit score. Typically, college students (or even high school students, if their parents sign up or add them as authorized users) receive a first credit card at school, which allows them to start building a credit history early. Once they are ready to buy a car with a car loan or buy a house and take out a mortgage, their credit history should be deep enough to be eligible for a loan. Without this kind of story, it can be difficult to make big financial purchases later in life.
Using only cash or debit card may also have limited rewards. One of the benefits of having certain types of credit cards is that you receive rewards or cash back for your daily expenses, such as groceries, petrol or travel purchases. Some US banks offer small debit card rewards, but it can be difficult to find debit card rewards.
Another disadvantage of paying with debit cards is that they do not offer the same type of protection against purchases or fraud as credit cards. Refunds for fraudulent purchases in a bank account may take longer or may not occur at all, depending on the bank or situation.
Lastly, activities such as renting a car or staying in a hotel room can be more complicated if you only use one debit card. Some companies will take a large deposit from your bank account if you use a debit card, which could freeze your money for days.
Ways to not have a credit card
Despite some major disadvantages, there are ways to build good credit and maintain a sound financial history without signing up for a credit card:
- Use cash or debit card to cut costs. When only cash or debit card is available, you are limited to spending more than you have at your disposal or in your bank account. It is almost impossible to spend more than what is available. This can be an effective form of budgetary discipline. Debit cards are also more convenient than cash, especially for online shopping.
- Build credit by paying off other loans or bills on time. Student loans or a car loan co-signed by a parent are still counted in the borrower’s credit history. Early payments can benefit the borrower’s credit score, but it may take longer to build good credit this way. Timely payment of other bills, such as rent, utilities, telephone or cable, can sometimes count on your credit history. Although these payments are usually not reported to the credit bureaus, there are free programs that can allow it. For example, Experian offers a free program called Experian Boost that will add a positive payment history to an Experian credit report.
- Become an authorized user. Becoming an authorized user on someone else’s credit card account does not require the user to obtain their own credit card account. This can be a useful solution for people who have a responsible friend or family member who is willing to help them build their credit history. As an authorized user, the user will have all the advantages for a positive credit history and credit score, as long as the primary account holder makes his payments on time and repays his balance each month. Before you become an authorized user, make sure that the credit card issuer reports the authorized user activity to the credit bureaus.
- Get a credit card. Credit loans help people build a good credit history, as long as they make timely payments each month. Once approved for a home equity loan, the lender will keep a small or large amount of money to be repaid by the lender. Once they have repaid the entire loan, all the money will be released and then can be deposited in a cash or savings account. This is generally not the best way to build credit as there is cost but it is an affordable option.
Find the best credit cards for 2022
No credit card is the best choice for every family, every purchase or every budget. We have selected the best credit cards in a way that is designed to be the most useful for the widest variety of readers.
It is possible to avoid getting a credit card, but it may not be the best way to make money depending on your financial goals. There are many ways to build good credit without, however, — such as applying for a credit line, becoming an authorized user, and building credit by paying other bills on time. However, using only cash or debit card to make payments has its drawbacks. Debit cards do not offer the same type of purchase or fraud protection and often do not have the same cash back rewards or sign-up bonuses. Make sure you research all the pros and cons of not having a credit card before giving it up completely.