You might be surprised at all the downsides of not having a credit card.
- Credit cards are an important tool and life can be more difficult without them.
- It can be harder to get a good credit rating without a credit card.
- You will miss out on the important protections offered by credit cards.
Credit cards can come with high interest rates and sometimes cause you financial problems. As a result, some experts such as Dave Ramsey and Mark Cuban have recommended avoiding them.
In reality, however, avoiding credit cards is generally a bad idea because life can be much harder without a card. Here are three reasons why this is the case.
1. You will need to find other ways to increase your credit
In order to be able to obtain a good credit score, you must demonstrate that you can be responsible when it comes to borrowing. Unfortunately, it can be difficult to find someone willing to give you a loan that you can responsibly repay if you don’t already have a good credit score.
This creates a trap for many people because you can’t access the credit you need to get a good credit score because you don’t already have a good score. Credit cards are one way around this conundrum. Secured credit cards can be obtained by just about anyone and can help you develop a positive payment history necessary to establish a good credit rating.
And credit cards don’t just help people get good credit if they don’t have any credit. Your score is based on a mix of different types of debt and responsible use of the cards by paying them off on time and not maxing them out. So if you have a credit card, don’t overcharge and pay bills on time. This will help you improve your score over the long term.
If you don’t have a credit card, you’ll need to find other ways to show lenders that you can be responsible for borrowing. It’s not as simple as it sounds because many types of transactions such as paying rent or utilities on time are not usually reported to the credit bureaus.
2. Money can be tied up when you use your debit card to deposit
Not having a credit card can also make life more difficult if you need to make a deposit – which is a common requirement when booking hotels or rental cars or even making reservations at certain restaurants.
While some companies let you use a debit card to make a deposit, this locks the money in your bank account until you get your deposit back. It’s a much bigger burden than having a hold on your credit card, which doesn’t actually limit access to your money.
3. You Can’t Dispute Charges If a Merchant Disappoints You
Finally, credit cards come with significant protections, including the ability to dispute charges if an item you purchased never delivered or isn’t as promised. If you charge items to a debit card or pay for them in cash, you will not have this remedy.
When you dispute a charge, the credit card company investigates the issue. If it turns out the merchant didn’t do what they said, the card company will initiate a chargeback to get your funds back and you won’t have to pay for the item or service that was not up to par. It can save you a lot of unnecessary financial loss.
For these three reasons, you shouldn’t give up using a credit card unless you have a very, very good reason for doing so, such as a complete inability to control your spending. Instead, you should get a card, use it responsibly, and take advantage of the benefits it offers.
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