By Mike Goldstein, Content Writer at Credit Karma
I spend a lot of my time writing credit-related content. I haven't always been a credit expert, but write a few dozen articles about any one topic and you start getting there. Since I spend so much of my time thinking about credit, I usually take the credit system for granted. I don't question its necessity or wonder how it got there in the first place. Instead, I'm more interested in finding little tips and new oddities. But I know not everyone is this invested.
Rather than dive into the details of it all, you may be more likely to approach the topic of credit health with skepticism. You might wonder, "Sure, but do I really need to care about this?" You might consider if you can live without credit. From an admittedly biased perspective, that's the possibility I'll dig into today.
The Answer Is Yes
Want to live without credit? Of course you can.
For most of your needs, you can subsist with cash. Food, entertainment, transportation -- all payable with paper. If you have rent or utility accounts, you can still get by with your checkbook too. And if you have enough savings to buy upfront, you won't need credit for big purchases, like a new car, either. If you have the resources and if you're willing to live simply and forego some opportunities, a credit-free existence certainly isn't out of the range of possibility.
Even situations where a credit card seems like the only option, like online shopping, aren't necessarily prohibitive. You can get a piece of plastic that functions like a credit card without actually having any credit. Debit cards, which come with checking accounts and are supported by major credit card companies, work just like a credit card would. Secured credit cards, for which you make a cash deposit equal to your credit limit, also will get the job done without requiring any preexisting credit history.
So there you have it. Living without credit is possible. Is it advisable though? Is it accomplishable without frustrating limitations? Those are different questions.
Why You Need Credit Anyway
Just because it's theoretically possible to live without credit doesn't mean it's recommended. Here are a few reasons that you need credit anyway.
If you want to buy a house, a healthy credit score can make all the difference. A higher credit score can save you literally tens of thousands in interest payments and be the ultimate difference between getting the loan you need and not. If you're looking to only rent forever, you can probably compensate for a low score with larger security deposits or by looping in cosigners. If you're trying to take that next step though, good credit is enormously important.
If you want rewards like cash back and bonus points, a credit card is the only way. Cash might get the job done, but if you're choosing not to use credit cards you're probably leaving money on the table, plain and simple. If you use your rewards cards properly, paying off your balance each month to avoid interest, you can get valuable rewards for spending that you would've done anyway.
For your protection, shopping with a credit card is often advisable. If your card is lost or the information is stolen, the Truth in Lending Act will protect you against fraudulent charges, capping the possible damages at $50. A check or debit card, on the other hand, is connected directly to your bank account and is governed under different, less clear regulation. Shopping online without a credit card could potentially leave your entire bank account vulnerable.
The same vulnerability applies in person, where cash is even less secure. If you lose a credit card, it can be canceled and replaced. Lost cash is lost forever.
If you're not exorbitantly wealthy, then credit will likely be necessary at some point in your life. The fact that the vast majority cannot afford 100 percent upfront payments on every single need is the reason the system exists. It's technically possible to save up enough to buy a car or a house in one transaction, but for most Americans this simply isn't within the realm of reason. Tending to your credit is a way to prudently manage for your future, and it will also prepare you for any unexpected changes or growth periods. If you wake up tomorrow and decide you want to start your own business, you'll want the score necessary to get the loan you need.
Given my background, I know the fact that I'd discourage a life without credit isn't quite surprising. Still, the necessity of a healthy credit profile is clear. If you think you'll ever be in the market for a big purchase, if you want to be rewarded for spending that you'll do anyway, if you want to shop online safely, you need credit -- and generally speaking, the better your score is, the better off you are.
Achieving the full benefits of credit health takes time. If you haven't had many credit accounts in the past, you might not have a score at all at this point. To make sure you're prepared when you need it most, I'd suggest getting started today by enrolling in free credit monitoring and getting a grip on your financial situation.
California is the worst state for foreclosures, and unemployment and bankruptcy also are severe problems, according to CardRatings.com. State unemployment rate in July 2012: 10.7 percent (Labor Department).
Arizona has the second worst foreclosure rate in the country, and many Arizonans also have low credit scores, according to CardRatings.com. State unemployment rate in July 2012: 8.3 percent (Labor Department).
Many Floridians are stuck in foreclosure, delinquent on their credit card debt, unemployed, bankrupt, or have low credit scores, according to CardRatings.com. State unemployment rate in July 2012: 8.8 percent (Labor Department).
Georgia is one of the worst five states in unemployment, bankruptcy rates, average credit score, and credit card delinquency rates, according to CardRatings.com. State unemployment rate in July 2012: 9.3 percent (Labor Department).
Nevada has the worst unemployment rate, personal bankruptcy rate, and average credit score in the country, according to CardRatings.com. State unemployment rate in July 2012: 12.0 percent (Labor Department).
Iowa has a lower than average unemployment rate, lower than average credit card delinquency rate, and higher than average credit score. State unemployment rate in July 2012: 5.3 percent (Labor Department).
Montana has above-average credit scores, fewer personal bankruptcies, fewer foreclosures, and less delinquent credit card debt than other states, according to CardRatings.com. State unemployment rate in July 2012: 6.4 percent (Labor Department).
South Dakota has better than average employment and credit scores, according to CardRatings.com. It also has fewer personal bankruptcies, fewer credit card delinquencies, and fewer foreclosures. State unemployment rate in June 2012: 4.4 percent (Labor Department).
Vermont was second best in the country in the foreclosure and personal bankruptcy categories and was above average in the other three categories. State unemployment rate in July 2012: 5.0 percent (Labor Department).
North Dakota "may be the best-kept secret in the country," CardRatings.com says. It was the best state in three categories, including unemployment, and fourth best in the other two, according to CardRatings.com. But remember that if you move there, you would have to live in North Dakota. State unemployment rate in July 2012: 3.0 percent (Labor Department).
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