According to a Bankrate.com survey, 63% of millennials (defined in the study as ages 18-29) and 35% of people over age 30 don't have a single credit card. While this can simplify your finances, not having a credit card could actually do you more harm than good.
Why you need at least one
There are a few good reasons to have at least one credit card. For starters, simple activities such as renting a car or checking into a hotel can be much more complicated without an actual credit card. In one case, I heard that a certain hotel chain put a $700 hold on a customer's debit card.
The main reason to have a credit card, though, is to build up your credit. Sure, it's possible to have decent credit without a credit card, but it's much tougher. This is especially true for younger people who generally don't have other account types, such as mortgages and auto loans. Without a nicely established credit history, it can be challenging to secure a loan, particularly when the only thing on your credit history might be student loan debt.
A quick overview of credit scores: The majority of lenders use the FICO score, which consists of five categories of information. Thirty-five percent of your score comes from your payment history, which can be boosted simply by at least occasionally using a credit card. Thirty percent comes from "amounts owed," which, among other things, takes into account your credit card balances as a percentage of your available credit.
Another 10% comes from your mix of credit accounts, which means a piece is automatically missing if you do not have a credit card. Finally, 10% comes from "new credit," in which fewer new accounts are better, and 15% comes from the length of your credit history, using information such as the age of your oldest account and the average age of all of your accounts.
The first three categories I mentioned, adding up to 75% of your score, can be negatively affected by not having a credit card. And millennials without any other type of active loan accounts might not have a FICO score at all. It requires at least one active account that has been reported for six months or more, so keep this in mind if you plan on applying for a mortgage or auto loan at any time.
It doesn't need to cost you a dime
Despite what you might think, having a credit card doesn't need to cost you a dime in interest. And you should not have to pay hefty fees, either
It's true that many cards designed for consumers with bad or no credit come with ridiculous interest rates and fees. However, a better option is a secured credit card, which allows you to put down a deposit (which you get back upon closing the account) in exchange for a credit card with similar rates and fees to traditional credit cards. The best part is that these are reported to the credit bureaus no differently than traditional "unsecured" cards.
My personal favorite is the Capital One secured card, which I used to establish credit years ago and have since closed. Many other banks, including Wells Fargo and Bank of America, offer similar products, so a good place to start would be your own bank or credit union.
As far as interest goes, many people who don't have credit cards don't realize that as long as you pay your balance in the agreed-upon amount of time, known as the "grace period for purchases," you'll owe no interest whatsoever.
It's not about spending, it's about the future
By obtaining a credit card and using it occasionally, you are making a very smart move for your financial future. If you don't like owing money, try using the card for something very small once a month, like buying lunch, and pay if off as soon as you receive the statement.
As long as you use the card for something you would have bought anyway, it won't impact your life much at all, but it can help when it comes time to making a major purchase.
