Credit cards are ubiquitous, and we’re even starting to see merchants that won’t accept cash. For example, airlines such as Southwest accept only plastic for in-flight purchases. It can also be difficult to make travel plans without a credit card, as many hotels and rental car companies require you provide a card number in case you run up room service or parking charges.
If you don’t qualify for credit or are just committed to living a debt-free life, you might be left wondering if it’s even possible to get by without a credit card these days.
If you need to book a hotel room or reserve a rental car, and you don’t have a credit card, you may be able to use a debit card that has a major network logo such as Visa or MasterCard. Since there is no guarantee that you’ll leave the hotel room or rental car in the same condition you found it, these companies may place a hold on several hundred dollars’ worth of your checking account funds.
Make sure you find out what a company’s policy is before you give it your debit card number, and make sure you have enough money in your account to cover any frozen funds. Further, some companies accept only credit cards, so you may need to shop around.
Borrowing for major purchases
If you don’t have a credit card because you’re not interested in borrowing money, this category doesn’t apply to you. If you don’t have a credit card because you can’t qualify for one, though, you may also have trouble borrowing for a major purchase like a car or house. If your inability to obtain a credit card is due to poor credit, you’ll have to spend some time pushing the negative items on your credit report into the past and building a positive history before most lenders will do business with you.
If you don’t have a credit card because a lack of a credit history has led to rejected applications, your problem is easily remedied. Apply for a secured credit card with a small credit line. Make one small purchase per month and pay it off in full. Then, check your credit reports to make sure your payment activity is being reported to the credit bureaus. This activity will begin to establish your credit history. Once you qualify for the loan you want, you can close the secured card account and go back to living without a credit card.
What about account security?
You needn’t worry about liability for unauthorized purchases made with your debit card if it carries a Visa logo because of that company’s zero liability policy. You should still read your debit card terms and conditions, though, to check for any limitations on the policy, such as ATM withdrawals. MasterCard also has a zero liability policy for unauthorized debit card transactions made in stores, by phone or online as long as your account is in good standing and you have not reported two or more unauthorized events in the previous 12 months. The policy does not apply to PIN-based transactions, though the financial institution that issued your card may protect you.
Read your debit card’s terms and conditions carefully so you understand your liability exposure before you use it as a credit card substitute.
Living without a credit card means you’ll need to do a bit more financial planning than folks who put everything on plastic do. Every time you leave the house, you need to have an idea of how much you’ll spend while you’re out so you can make sure you have enough cash in your pocket, a sufficient balance on your prepaid card or enough money in your bank account to cover your debit card purchases without incurring overdraft fees. This extra planning takes a bit more time and can be inconvenient. You may not be able to make purchases when it is most convenient if you don’t have any way to pay for them. The upside is that you’ll be limited in how much you can spend when you leave the house, which will help you keep your spending under control.
The bottom line
While it may be inconvenient at times, life without a credit card is possible. You just need to do your homework to learn which purchases may be more difficult and determine how you can best handle those situations before you buy.