If you don't plan to borrow money, what difference does your credit score make? Why even sweat it?
As counterintuitive as it seems, you could end up spending more money because you don't have a credit history. (Though like any other tool, credit used irresponsibly can do more harm than good.) But let's say you're a responsible person who wants to avoid debt. Why isn't it reasonable to avoid credit altogether?
There are several answers to that. Read on to see how not having a credit card can hurt you.
Buying a home will be pricier
If you want to finance a home, you will have more difficulty getting a mortgage, and it will likely be at a higher interest rate than for someone who has a similar financial profile, but has a good credit score. And it may be more challenging to find a lender who is willing to work with you.
Renting is no cake walk, either
So you're not planning to buy a house soon? You may have trouble renting, too. We had a reader reach out to us last week for help because her recently widowed mother was denied an apartment because she didn't have a credit history (everything had been in her late husband's name).
It is not impossible to rent without a credit score, but you may have fewer choices. Landlords will likely want to check your credit before renting you an apartment to ensure you're likely to pay them on time and in full. Payment history is the biggest factor in your credit scores, so a credit score or credit report can be helpful in spotting a good tenant.
Larger security deposits
And whether you buy or rent your home, you'll pay more in deposits. Whether you're connecting utilities, getting cellphone or cable service, or putting down a deposit to rent, not having a credit score means there's less information available to judge how likely you are to honor your financial obligations. And without that information, businesses often cover their risk by requiring a larger deposit. While most of these deposits will be refunded, it still means putting up more upfront cash that you may not have.
You may pay more for both car insurance and homeowners insurance, because credit score is a factor in determining rates. How big of a factor? We recently heard from Loretta Worters, vice president of communications for the Insurance Information Institute, who said, "Credit score is a really, really good predictor - better than a driving record."
Traveling will be more difficult. You won't have a credit card to guarantee a hotel room or make reservations for air travel, for example. And if you don't carry enough cash to pay for gasoline, using a debit card (which you can also do to guarantee a hotel room) "freezes" enough of your balance to cover a large purchase and can leave you without the use of a good chunk of your money.
For example, if you use a debit card to put $20 worth of gas in your car, you could be subject to a temporary "block-hold" of $100 and lose the use of your money for