Will Not Using Your Credit Card Hurt You?

Avoiding swiping your credit card might seem like it would be the financially savvy thing to do, but in reality, there could be potential disadvantages to not using it. While, in the past, Americans were fairly quick to pull out their credit cards to make purchases, that trend has been gradually training.

According to research from the Government Accountability Office, college students have become increasingly wary of taking on credit card debt. In fact, the proportion of students with credit cards declined to approximately one-third of students from the previous year, a decline from half in 2004. The reasons for reluctance among younger adults to use their credit cards vary and often include being burdened with student loan debt and the lack of a steady income. In other cases, consumers may avoid using their credit cards because they got in over their heads with debt in the past. As a result, consumers have become increasingly judicious regarding the use of their credit cards.

Disadvantages to Not Using Your Credit Cards

Avoiding the usage of credit cards can help ensure that you do not rack up any debt or late payments, but there can also be disadvantages to avoiding the use of credit cards. The reality is that consumers with little to no credit history may have what lenders refer to as a thin credit file. This can make it difficult in the future for such consumers to obtain a loan for large purchases, such as a vehicle or even a home. Creditors, such as credit card companies, report consumer borrowing habits to credit reporting bureaus. The reports generated by those bureaus are then used by lenders who review payment history and credit usage over time to make decisions regarding whether a consumer is creditworthy. When a consumer does not use his or her credit card and has no other borrowing history, it can be difficult to underwrite that individual. Consequently, such consumers may end up paying a higher interest rate or even face the prospect of having a loan application declined altogether.

By not using your credit card, you could also be missing the opportunity for earning rewards for your spending habits. Depending on the type of credit card you use, you could potentially earn purchase points by paying on credit. Such rewards can vary and may include sports merchandise, plane tickets, and even cash back, but if you do not use your credit card, you will not have the opportunity to earn those rewards.

Learning to Use Your Credit Cards Judiciously

Rather than avoiding credit card usage altogether, a wiser approach might be to maintain a single credit card and use it on a periodic basis to pay for small purchases. This strategy can help you avoid taking on too much debt, and by making credit card payments on time, you can build a positive credit report that can make it easier to borrow larger amounts in the future.

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