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I Never Plan to Take Out a Loan — Do I Still Need to Get a Credit Card?

May 20, 2014
Credit Cards
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Credit cards are a great tool for earning rewards and building your credit history. But are they really necessary for people who don’t plan to apply for a loan in the future? Let’s discuss.

Is it possible to have a credit score of “0”? 

A typical credit score ranges from 300-850, with 300 being the worst and 850 being the best. However, those who don’t use credit will have a score of zero. Zero is not an inherently bad score, it just means you’re on the sidelines.

In order to have a three-digit credit score, you have to play the credit game. You have to get into debt. The way you handle it will determine whether your score is good or bad. For instance, people with high credit utilization who frequently make late payments will have a bad credit score, while those who make their payments on time and don’t have a lot of revolving debt will have a good credit score.

Is a credit score necessary if I plan to stay loan-free?

There is a common misconception that you only need a credit score if you plan on going into debt. Not so. While you can function in society without a credit score, it’ll take more work.

Let’s say you plan to never own a home, so you’ll never need a mortgage. Fair enough. Renting for life is fine. But it doesn’t exempt you from needing a credit score. Many potential landlords will pull your credit to make sure you’re creditworthy. While a score of “0” doesn’t say you’re irresponsible with credit, it doesn’t say you’re responsible, either.

You may be able to find landlords who don’t pull your credit score. But most property management companies will want to know you have a reputation for paying your financial obligations on time.

Another consideration: Nearly 50% of employers look at your credit history, according to a study conducted by the Society for Human Resource Management. You could work for the other half of employers, of course, but it’s limiting.

Do you need to open a credit card to build credit history?

If you are opposed to credit cards on principle, you can build a credit history without going into debt. One option is a secured credit card, which is backed by cash. There is no debt involved, you just pay a refundable deposit equal to the amount of your credit limit. For our favorite secured credit card options, check out this NerdWallet roundup.

You can also go with a traditional credit card, as long as you’re able to pay the balance in full each month. If you think a regular credit card will cause you spend more and take on revolving debt, the secured card is a better option. Don’t take on debt just to build a credit score.

Never say never 

You may not be planning on applying for loans, but that could change. Just in case, it’s a good idea to have a solid credit history even if you think you won’t need it. It gives you options.

Bottom line: Build up your credit history, regardless of your future plans. You’ll have more flexibility than you would without a credit score. To avoid revolving debt, pay your entire credit card balance in full each month on or before the due date, or stick to secured cards to avoid debt altogether.

Questions image via Shutterstock