Rounding it up
There’s nothing inherently good or bad about having a credit card
There are benefits to having a credit card, like building credit, earning rewards, and the convenience of certain bookings
There are also drawbacks, like going into debt, harming your credit, and the potential for fraud
Don’t forget there are also alternatives to a traditional credit card you can explore, if you don’t want or can’t get a credit card
Like so much else in life and finances, owning a credit card is a personal choice. They are undoubtedly useful financial tools, but they’re also not for everybody.
It’s absolutely possible – and totally acceptable – to not have a credit card. With cash, debit cards, e-transfers, and cheques, you can make do without a credit card for most things.
For some people, credit cards have some negativity associated with them. Maybe you aren’t good at controlling your spending and think a credit card will drive you into debt. Maybe you have been burned by credit card debt already and want to avoid a repeat. Or maybe you aren’t currently able to qualify for a credit card (through bad credit, for example). These are all valid reasons for not having one.
It has to be said, however, that credit cards can be really useful in several important ways. So, if you’re on the fence about credit cards, it’s worth reading on.
What happens if you don’t have a credit card?
What happens if you don’t have a credit card? Well, nothing really happens. It’s just that, by not having one, there are some benefits you might miss out on that could make your life a little easier.
One major advantage you might miss out on by not having a credit card is an easy way to build a good credit score. While there are other ways to build credit (more on that later), credit cards are perhaps the easiest way. Without good credit history, it can be difficult – or impossible – to qualify for large loans, car purchases, mortgages, or secure some rental properties.
You might also miss out on spending rewards, like cashback or airpoints. Depending on the credit card, when you spend money on groceries, dining, gas, or travel, you gain credits that can be redeemed for cash or put towards airline tickets. Some credit cards offer additional rewards like airport lounge passes and roadside assistance too. While certain debit cards offer rewards such as these, they are less common and the rewards programs often aren’t as robust.
It can also be challenging to book hotel rooms or rental cars without a credit card. Often you’re required to use a credit card to secure the booking – as pending transactions are placed on a credit card as security. Sometimes you might be able to put these holding charges on your debit card, but they can be quite large (several hundred dollars) and would tie up a good chunk of your available funds. Because credit cards usually have larger limits, this would be less of an issue.
Cons to having a credit card
So, while there are benefits to having a credit card, there are drawbacks to credit card ownership as well.
To get the most out of credit cards, you need to be using them – spending with them and then paying them off. That’s how you earn rewards and build credit. But using credit cards can also be harmful to your finances if you aren’t using them responsibly. Because you’re spending borrowed money, it’s easy to overspend – it’s there and it’s available, but if you aren’t careful, it’s easy to spiral into debt. Interest and fees can quickly rack up, and suddenly you’re unable to repay your debt.
And getting into financial trouble with a credit card can actually harm your credit score. So, while credit cards are great for building credit when used responsibly, they can also tear down credit when used irresponsibly. If you spend a lot and don’t make regular repayments, your credit score will suffer. And, since your credit score is what lenders use to determine if you are safe to lend to, having a bad credit score could mean you have difficulty securing future loans, mortgages, rental properties, or other credit cards.
Another cons to having a credit card is fraud. Credit cards are prime targets for cyber-criminals and real-life thieves. With tap functionality, a crook doesn’t even need a PIN if they get their hands on your physical card. And hackers and scammers are always looking to steal card numbers from unsuspecting targets online or over the phone. Credit card companies generally offer fraud protection in case your card is stolen, but credit card fraud nevertheless remains a huge inconvenience.
How to build credit history without a credit card
Credit cards help you build your credit score, as mentioned. They’re probably the best and easiest way to help you do this. But credit cards are not the only way. If you can’t get or don’t want a credit card, there are other options to help you build credit.
You can build credit by paying off your loans and bills regularly and on time. Student loans are a good vehicle to build credit, though it may take longer to build your score. Loan repayments are reported to credit bureaus so they count towards your credit score. Repaying your student loan on-time proves you are responsible to lend to. Some cell phone providers also report bill payments to the credit bureaus, so paying your monthly cell phone bills on time can therefore help you build credit. With any loans or bills, it’s important to remember that on-time payments positively impact your credit score, and conversely any missed or late payments negatively impact your score.
Becoming an authorized user on someone else’s credit card can also be a great way to build credit. This is a bit of a workaround to not having a credit card – because technically you will have a credit card. But you don’t have to use it to build credit. When you become an authorized user on someone else’s credit card, you can benefit from their spending and repayments on their card and you’ll earn positive credit at the same time they do. Obviously, you’ll need to find a reliable and responsible person – likely a family member or close friend – and they would need to add you to their account. As long as the primary card holder makes on-time payments, you’ll build credit alongside them as you’re linked to their repayment behaviour. Since you would be issued a credit card too, if you used it and accrued debt the primary account holder would be responsible for it.
Finally, there are providers that specifically offer credit building services – like KOHO. With KOHO’s Credit Building tool, you open a no-interest line of credit. You make small repayments every month and with each on-time payment you build credit. KOHO reports to the credit bureaus and, in just six months, you can build a positive credit history.
Credit card alternatives
If a credit card is not in your future, that’s totally ok. Opting to instead carry around a lot of cash might not be the best or safest substitute, so luckily you have other card options that will work for you.
Many financial institutions offer Visa Debit cards and Debit Mastercards. These debit cards work much the same as credit cards, in that they can be used for online shopping, over the phone, as well as in-person. However, the difference here is that these debit cards pull money from your own chequing account as opposed to borrowing credit. They give you the spending convenience of a credit card, without the debt – but also without the credit building element.
Another option is a reloadable prepaid card, like the KOHO prepaid Mastercard. With a KOHO prepaid card you have many of the benefits of a credit card – cashback rewards, robust consumer protections, accepted almost everywhere – but without the risk of debt. Prepaid cards are great because you’re only spending your own money. You load, and reload, the card when you need it. These cards are a great way to budget and limit spending, while still having all the convenience of a credit card. And there are no fees! And it’s easy to sign up! What a great option.
There’s nothing inherently good or bad about having or not having a credit card. Ultimately, it’s a personal decision. You should weigh the pros and cons, examine your own spending habits and financial health, and determine whether or not to have a credit card. It’s your call.
Sam Boyer spends, invests, budgets, and writes. He enjoys writing about things he wishes he’d learned earlier — like spending, investing, and budgeting. A journalist originally from New Zealand, Sam has written extensively about consumer affairs, insurance, travel, health, and crime.