It can feel sensible to avoid getting a credit card to reduce the chance of a debt trap, especially if overspending has been an issue in the past. The promise of “buy now, pay later” that credit card companies promote can heighten that risk and make it easier to spend beyond a planned budget.
Not having a credit card can be detrimental to your financial situation if major goals are in play, like buying a house, because many milestones depend on visible account activity.
The sections below explain the five downsides of not getting a credit card and how they can affect you over the long term, so you can judge the impact on your plans.
1. No Credit Score or Credit History
For you to have a credit score, you must have an open credit account that has been active for at least six months. You cannot jumpstart your credit history without a credit card. Without a credit card, you may not have a credit score.
However, for people who really don’t want to get a credit card, there’s good news: There are several ways you can build your credit score without a credit card. For instance, if you have any loans, such as student or auto loans, you probably have a credit score.
Getting a loan can be troublesome though as having a credit card is an important factor that is considered when you are applying for loans. It may be very difficult to get a loan without an existing credit score. So, even if you use it infrequently, opening a credit card is important for building credit.
2. Less Fraud Protection
Credit cards typically offer the strongest protection against fraudulent transactions compared to other payment methods. In many cases there is no liability for unauthorized charges as long as the issue is reported within the required time frame.
Even then, your maximum liability could be only $50. On the other hand, however, you could be liable for up to $250 of debit card fraudulent charges, depending on how late you report your case. If you are unlucky and your money gets stolen from your bank account, you might never get it back.
3. Missing Out on Great Credit Card Perks
Many people who use credit cards attest to the valuable offers that come with them, provided balances are paid on time and in full every month as part of responsible use.
From credit card rewards, rental car insurance, roadside assistance, price protection, and extended warranty, credit card rewards and perks are ample. When you spend money without using a credit card, you are missing out on these perks.
4. Some Transactions Require Extra Steps
Booking a hotel and renting a car are transactions handled more smoothly with a credit card because the process favors accounts on file. If no card is available, additional documentation to prove identity is often requested to complete the booking.
You will likely have to pay an upfront fee to complete the transaction. This is one dreaded process that can easily be avoided if you have a credit card.
5. Limited Purchasing Power
Without a credit card, you only have access to the money that is in your bank account at that particular moment. This can be a problem when large, unexpected expenses arise, like a car repair or medical bill.
Using credit cards is essentially like an automatic loan. They allow you to spend more money than you currently have and pay it back later.
Conclusion
There is no doubt that credit cards offer security, rewards, and above all, convenience. However, more and more people are finding that they are not a necessity.
Even though they could quickly get approved, some people decide not to have any credit cards and they are doing just fine. If you learn to plan, budget, and live within your means, with or without a credit card, you can enjoy your financial life.
