When You Have No Credit History

It is common for lenders to look at your credit score to determine if you are eligible for a loan and at what rate. But if you never use credit cards, you may have a hard time building a credit history. And if you don’t have any payment type or credit history, credit bureaus can’t give you a credit score.

To be clear, making credit card payments isn’t the only way to establish a credit history. You can also do it by paying to mutual or another installment loan, such as a car loan, that expires over time.

But for many consumers, paying off a credit card every month is a good way to build a credit and payment history. So if you never use a credit card, you might have a hard time building that history.

You might be thinking, “What good do I need a credit score if I’m someone who doesn’t believe in lending?” And that’s fair enough.

But it’s common practice for landlords to do a credit check before allowing people to rent a home. So if you’re in need of a rental, having no credit score could be a detriment, even if you have a strong financial footing.

You May Miss Out on Valuable Rewards

Another problem with never using a credit card? You may end up missing out on valuable rewards that put cash in your pocket for the things you buy.

Let’s say you spend $6,000 a year on groceries and you have a credit card that gives you 3% reimbursement at the supermarket. By paying cash, you’re giving up $180 a year. This is about 1.5 weeks grocery shop.

Consider Both Sides of the Coin

Some financial experts will insist that it is best not to use credit cards. Dave Ramsey, for example, is known for his stance against credit cards. But by never using a credit card, you could end up setting yourself up for some unnecessary struggle by losing free cash to cover essential bills. So before you write off the idea of ​​credit cards, devise a strategy for managing yours well.

You might, for example, decide to start by limiting yourself to $500 a month in credit card charges, even though you’re eligible for a much higher spending limit. So when you see that you are fully covering your expenses with ease, you can afford to spend more on a monthly basis.

You may also decide to only charge a recurring bill to a credit card to establish a payment history. But the key is to think about the positives of using credit cards and not just focus on the negatives.

Summary

Many US consumers use credit cards regularly. US credit card debt only exceeded one trillion dollars, which isn’t a good thing in itself, but it contributes to the idea that credit cards are a popular tool.

The truth is, if handled properly, credit cards can be a useful, non-harmful financial tool. In fact, never using a credit card could end up making your life more difficult financially.

When you have no credit history, it can be challenging to obtain loans or rentals. Building a credit history through responsible credit card use can be beneficial in such situations.

Additionally, by not using credit cards, you may miss out on valuable rewards and cashback opportunities. Credit cards offer various perks and reimbursement options that can save you money on everyday expenses.

However, it’s essential to consider both sides of the coin and develop a responsible strategy for managing credit cards. Setting spending limits and establishing a payment history can help avoid unnecessary struggles and maximize the benefits of credit card usage.