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Living without credit cards may seem like a scary proposition for people who are accustomed to whipping out their cards at every turn, and many will not even consider going free of their cards. Opponents of using revolving debt argue that having this open credit available brings on too much temptation. Trying to go credit card free has both pros and cons, however, and they all should be considered before making a decision.

Emergency Situations

The most obvious con when it comes to living a life free of credit cards is that you may run into an emergency. A broken down car or a burst hot water heater can mean a hefty expensive, and without a credit card , you could have trouble coming up with the cash. Before going credit card free, then, save up some cash. Make the emergency situation a pro by paying outright for an emergency so that you aren’t seething for months to come each time you pay the bill from that blown tire.

Credit Card Holds

There are times when having a credit card is beneficial for holds that need to be placed on an account. A common example is a car rental, which often requires a small hold to make sure that the renter has the money to cover the cost of the car. Without a credit card, making these rentals is more difficult, but it can be a pro if you are careful. Living without credit cards requires people to plan better. Rentals and other “holds” can be accomplished by making a rental early or by putting down cash to cover the costs. By not using a credit card, you will be less likely to make impulse trips or large purchases, which can mean you spend less money overall.

Credit Score

Two main credit agencies tabulate scores for Canadian citizens: TransUnion Canada and Equifax Canada. It is important to remember that credit agencies are private companies not controlled by a government agency. They make up their own system for scoring, and each is a bit different, but both use a score of 300 to 900. Each type of debt is labeled with R, O, or I. Credit cards fall under “R,” which means revolving debt (more on that here). Accounts that are an O are open lines of credit, such as a home equity loan, and I debts are installment payments like a mortgage or auto loan.

There are pros and cons to having a credit card when it comes to your credit score. Having a card will allow you to begin building credit. Both TransUnion Canada and Equifax Canada assign a number 1 through 9 to each account on a person’s credit report with 1 being the best score. If you are able to keep your charges relatively low in regards to your balance and can make substantial on time payments to your card each month, paying it off if possible, then you receive a 1 and are on the way to building your credit score.

On the other hand, if you are unable to make your payments at any time or begin to amass large amounts of debt, your score will decrease. The con of credit cards with relation to credit scores then is obvious. It can destroy your credit, meaning you will pay higher interest rates for loans in the future. You can live without credit cards if you are willing to work on building your credit portfolio in other ways through a variety of debt types.

The pros and cons of credit cards both should be considered when making this decision. Building a good credit score is important, but there are ways to do it without credit cards if you believe that you will be unable to resist the temptation of making too credit card purchases. On the other hand there are also many ways we ruin our credit without even knowing it. One solid option, especially for young adults who are just beginning to build their credit, is to try to use a secured credit card or to get a credit card with a very low limit. With secured cards, you put the money forward into an account to use. It works like a debit card, but the company typically reports to credit bureaus. With a low limit traditional card, you will not be able to run up huge debts, which is good if you are unsure how you will handle your debts.

Think long and hard about the pros and cons of getting credit cards before you make the decision. Always remember that you can change course in the future if needed to protect your credit score!

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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