It is quite permissible to avoid obtaining a credit card. Consumers can pay fully in cash, cheque, or debit card while still building a solid credit history with other forms of loans. According to a Federal Reserve study from 2020, 79 percent of U.S. customers had at least one credit card, which may indicate that as many as 21 percent of U.S. consumers live without one. Anyone can make purchases with cash or obtain a debit card from a bank for extra convenience.
However, while there are methods to avoid having a credit card in the United States, there are drawbacks to doing so. Here’s what you need to know if you want to live a plastic-free life.
Cons to Not Having a Credit Card
Previous Visas may make it harder to get a strong record as a consumer and score. Understudies (or even proactive secondary school understudies if their folks cosign or add them as approved clients) commonly acquire their first Visa in school, permitting them to begin assembling a record as a consumer when achievable. At the point when they are prepared to purchase a vehicle with an automobile advance or a house with a home loan, their record as a consumer ought to be adequately broad to permit them to get acknowledged for an advance. It very well may be difficult to make critical monetary buys sometime down the road on the off chance that you don’t have this kind of foundation.
Using solely cash or a debit card might also restrict your rewards potential. Receiving rewards or cashback on groceries, petrol, or vacation expenditures is one of the benefits of using a credit card. Some banks in the United States provide minor incentives with debit cards, however finding lucrative debit cards can be challenging.
Another disadvantage of utilizing solely debit cards is that they do not provide the same level of purchase or fraud protection. Depending on the bank and the scenario, refunding fraudulent purchases to a checking account may take longer or may not occur at all.
Finally, if you just use a debit card, activities like hiring a car or staying in a hotel room might become more difficult. If you use a debit card, certain firms may make a large deposit into your checking account, which might hold up your money for days.
Ways Around Not Having a Credit Card
Despite these substantial disadvantages, there are ways to develop credit and maintain a healthy financial history without applying for a credit card:
Limit your expenditures by using cash or a debit card. When just cash or a debit card is available, the cash or cardholder may spend exclusively from their pocket or bank account. It’s almost hard to spend more than what’s available. This can be an efficient method of budgeting. Debit cards are also handier than cash, especially when shopping online.
Build credit by making on-time payments on other loans or invoices. Student loans and vehicle loans cosigned by a parent continue to be included against the loan holder’s credit history. On-time payments can improve a loan holder’s credit score, although it may take longer to develop good credit in this manner. Other bills, such as rent, utilities, phone, or cable, might occasionally be counted into credit history. Although these payments are often not recorded by credit agencies, there are free tools that can make this possible. Experian, for example, provides a free service called Experian Boost, which adds good bill payment history to an Experian credit report.
Make yourself an authorized user. To become an authorized user on someone else’s credit card account, the user does not need to open their own credit card account. This might be a helpful workaround for those who have a responsible friend or family member ready to assist them in building their credit history. As an authorized user, the user will receive all of the benefits of a positive credit history and credit score as long as the primary account holder makes on-time payments and pays off their amount each month. Make sure the credit card issuer discloses approved user activity to credit bureaus before becoming an authorized user.
Apply for a credit-building loan. Credit builder loans assist customers in establishing a solid credit history as long as they make on-time monthly payments. When a credit builder loan is authorized, the lender will retain a little or big quantity of money that the loaner must repay in installments. When they have paid off the full loan, the money will be given to the loaner and can be deposited into a bank or savings account. This is not usually the greatest approach to establish credit because there is a fee involved, but it is an alternative.
It is possible to avoid having a credit card, but depending on your financial goals, this may not be the best option. However, there are methods to develop excellent credit without one, such as applying for a credit builder loan, becoming an authorized user, and building credit by making on-time payments on other bills. Using solely cash or a debit card to make payments, on the other hand, has downsides. Debit cards do not provide the same level of purchasing or fraud protection as credit cards, and they sometimes do not provide the same cashback benefits or sign-up bonuses. Before you give up your credit card, make sure you’ve thoroughly researched all of the advantages and disadvantages of not having one.