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Most adults get their first credit card in their early 20s. Credit cards provide a simple way to build a credit history. But like a lot of people, you might prefer “not” having a credit card. A credit card is a nice convenience, but it's not a necessity.
Here are seven tips to survive your 20s without a credit card.
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It’s important to save about 10% of your earnings. Having an emergency fund or cash cushion is crucial if you don't want a credit card. Many people rely on a credit card during an emergency because they don't have cash. If you build a savings account, this reduces the likelihood of using credit.
Some retailers do not accept cash, and you need plastic to rent a car, book a hotel or buy an airline ticket. As long as you have a prepaid card or a debit card, you can get by without credit. A prepaid credit card isn't a traditional credit card, so it doesn't help your credit score. Deposit a certain amount on your card, and then use it for different purchases. Or if you have a bank account, use your bank debit card when booking a hotel, shopping online or buying an airline ticket.
Some young adults apply for a credit card because they want to build their credit score and eventually buy a house. But getting a credit card isn't the only way to build your credit. You can also build credit by getting a cheap auto loan, a student loan, or you can ask your landlord to report rent payments to the credit bureaus.
If you live above your means, you're more likely to rely on a credit card. Some young adults get their own apartments, but don't fully understand how much it takes to run a household. So while they might have enough money to pay their rent and utilities, they don’t have enough to buy food or cover their insurances, and they end up using a credit card to make ends meet. If you decide to move out, it's important to prepare a careful budget beforehand and minimize your expenses to avoid relying on credit.
Surviving your 20s without a credit card also involves fighting temptation. Since you're paying cash for everything, you have to learn how to distinguish between needs and wants. You might want to go on a spring break trip with your friends or shopping every other weekend, but is this a need? And more importantly, can you afford it?
Immediately buying an item provides instant gratification. If you're trying to survive without a credit card, you'll need to consider other ways to purchase the things you want or need. This includes saving up until you have enough cash, or taking advantage of layaway and paying a little toward items each week.
Even if you have one type of credit, this might not be enough to give your credit score a boost. Some mortgage lenders require at least two types of credit on your credit report. In this case, look into getting a secured credit card. These low-limit credit cards require a security deposit, which determines your credit line. If you give the bank a $250 security deposit, you'll receive a credit card with a $250 line. This isn’t a prepaid credit card, so you're still required to make monthly payments.
Some people think credit cards are a necessity, but there are plenty of people who do not have a credit card and get by just fine. What are other tips for surviving your 20s without a credit card?
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