Do I Need a Credit Card? When It’s Required, Myths & Alternatives
No one truly needs a credit card. While credit cards make certain types of transactions much easier and safer to complete, in addition to providing a host of other benefits, you can generally get by with cash or a debit card.
With that being said, common misconception holds that credit cards are indeed required in certain instances, so let’s examine that claim in order to determine if the luxury provided by plastic ever borders on necessity as well as how you can skirt supposed credit card mandates should they ever present themselves.
Myths & Realities About Needing a Credit Card
From various transactions that supposedly require the use of credit to a host of other apparently proprietary benefits, there is no shortage of claims that credit cards are indispensable. But do such assertions hold water? Let’s take a look at some of the most prominent reasons why people believe they require the assistance of a credit card.
Myth: I Need a Credit Card to Build Credit.
Fact: A credit card is the most accessible method of establishing credit because, unlike a loan, it does not necessitate that you get into debt for information to be relayed to the major credit bureaus. This takes place on a monthly basis, regardless of whether you actually use your card to make purchases. As long as you don’t misuse your account by paying your bill late or maxing out your credit line, you will gradually build the credit standing needed to save on insurance premiums, buy a car, rent an apartment, get a mortgage at a reasonable rate or land a job that requires either the handling of money or a security clearance.
With that being said, you can also build credit through other means – such as taking out a loan and making payments as agreed. There is also increasing momentum for alternative credit building methods to be recognized by the major credit bureaus, including certain rent payments, but these have yet to go mainstream. Still, it is clear that you can indeed build credit without a credit card; it just may be more costly.
Myth: I Need a Credit Card to Make Travel Arrangements.
Fact: It’s certainly possible to rent a car or book a hotel room without a credit card – it could just make things a bit tougher. For starters, the hold that hotels and rental companies place on customer accounts will tie up your actual money, rather than your credit line, if you choose a debit or prepaid card. You may also have to submit to a credit check or face additional restrictions in terms of the type of car you can rent. Cash is typically only an option when you return your car or are checking out of your room for good.
Given how complex hotel and car rental payment policies can be, it’s best to check out our articles dedicated to these topics – Renting a Car Without a Credit Card and Booking Hotels & Flights Without a Credit Card – in order to get the full picture before making a reservation.
Myth: I Need a Credit Card to Shop Online.
Fact: Most retailers that conduct business online will gladly accept debit cards and prepaid cards as well as PayPal, which means you can easily make do without a credit card.
Myth: I Need a Credit Card to Access Emergency Funds.
Fact: Emergency expenses – like unexpected health care costs or car repairs – create an immediate need for capital that the 25% of us who do not have emergency funds may not be prepared to meet. While a credit card is the most attractive option for covering these costs, it is not the only tool at your disposal. You could also tap into your home equity to meet your short-term bills or take out a personal loan.
Myth: I Need a Credit Card for Spending While Abroad.
Fact: Carrying cash in a foreign country is frowned upon for an obvious reason: If you’re robbed, you can kiss your cash goodbye. The best way to protect yourself during an overseas trip is to carry a no-foreign fee credit card. With this type of card, you’ll avoid paying costly foreign transaction charges, get the best exchange rates from Visa and MasterCard and benefit from the card networks’ zero-liability guarantees.
But you have other options:
- You can get a no-foreign fee debit card, which functions the same way as its credit card counterpart, minus the unassailable fraud protection.
- Traveler’s checks still exist today, but they come with many hassles: you can only cash them when banks are open, they get the worst exchange rates, they charge high fees and few merchants accept them overseas. However, similar to credit cards, traveler’s checks offer user protections against theft.
- You can always exchange hard currency at a bank and then use cash in your destination. You’ll be at risk of getting pick-pocketed and you won’t get the best exchange rates, but it is an option nonetheless.
Myth: I Need a Credit Card to Protect Against Fraud & Theft.
Fact: It’s true. Credit cards come with protection and security features that create a line of defense between you and fraudsters. In fact, all four of the major card networks offer $0 liability guarantees for unauthorized use of your credit card. That protection extends to certain debit card transactions, but it is not as straightforward or all-encompassing. Signature debit card transactions are covered by $0 liability promises as well, but charges verified by PIN don’t necessarily receive the same level of protection. Cash offers no protection if stolen.
Other Factors to Consider
Credit cards possess numerous advantages and disadvantages, in addition to the convenience of simplified spending. Some perks include the ability to earn rewards, the convenience of paying for purchases over time and zero liability guarantees for fraudulent transactions.
On the flip side, you pay for the convenience of buying now and paying later, hurt your credit if you abuse your account, and fall into debt if you don’t spend responsibly. Given this potential for abuse, it is very important that you consider why you want a credit card, how you will use it, and the strategies you will employ in order to avoid mistakes like impulse shopping and maxing out your credit line before you apply for plastic.
WalletHub has a whole guide on the Pros & Cons of Credit Cards, so make sure to check it out as you decide whether getting a credit card would be beneficial to your financial life. In doing so, keep in mind that you don’t need to actually make purchases with a credit card in order to benefit from having one. You will build credit even if you simply maintain an account with zero balance, which is very important to know if you’re worried about overspending. That means you can simply lock your card in a drawer if you so choose and get the best of both worlds.
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