Avoiding Credit Cards? Here’s How It Can Backfire

Millennials are more likely not to have a credit card. Sometimes choose to avoid credit cards because they think it’s a one-way ticket to debt. Or because they simply prefer to use cash. While there are some risks to using a credit card – like running up a big balance – those risks can be managed.

Plus, there are some great benefits to using credit cards that can help your credit and even help you save money.

You could be hurting your credit.

There’s not much you can do in today’s society without having a good credit score. More companies check credit score for applicants and place more requirements on consumers that don’t have a credit score.

Credit cards are one of the easiest ways to establish and build good credit because they’re easier to qualify than most types of loans. You only need to have a credit card open for the past six months to generate a credit score.

You can protect your credit by only opening up one credit card to start. Only charge what you can afford to pay on that card and make all your monthly payments on time.

You may have to pay higher interest.

Since interest rates are based on your credit history, not having established credit may lead to higher interest rates when you borrow money. This means to higher monthly payments and more money paid over time.

You could make it harder to open accounts.

Without a history of making payments on time, it’s hard for companies to tell whether you’re a trustworthy applicant. Landlords, utility companies, even cell phone service providers all check your credit score when you put in an application. Without any credit history, you could have to pay a high security deposit or, in some cases, you may be denied completely.

You’ll have a harder time renting a car or booking a hotel.

These companies often require customers to use a credit card to book. If you only have a debit card, you may not be allowed to make a reservation. When you find a company that does allow you to use a debit card, they may impose other restrictions. For example, they may do a soft credit check or may place a large authorized hold on your checking account. That leaves you with less money you can spend until the authorization hold is lifted.

You don’t have as much protection against fraud.

Most credit cards offer zero fraud liability protection. That means you can simply let your credit card issuer know when a transaction is fraudulent and they’ll remove the charge from your account. Debit cards don’t give you the same protection. You’ll have to report the fraud to your bank, who will then do an investigation into the charges. Then, you must wait until the bank has done their research for the funds to be put back into your account. This can be a major inconvenience depending on the size of the unauthorized charges.

You can miss out on rewards and other perks.

Many credit cards offer rewards that you can earn on each purchase you make. On top of the rewards, there are several perks that can save you money.

A few perks include:

• Auto rental coverage which lets you save money by declining the coverage offered by the credit card company
• Extended warranty adds additional time on top of the manufacturer’s warranty.
• Price protection refunds you if the price drops on your recent credit card purchases.
• Many travel or airline rewards credit cards waive the checked baggage fee on the first checked bag for you and for anyone traveling with you.