5 Reasons You Shouldn't Get a Credit Card

Getting a credit card can be a great financial decision. But are you filling out your application with the right motives? 

Before you sign up, check yourself against these five reasons you shouldn’t get a credit card: 

1. Consistent timeliness isn’t your best skill. 

Payment history is the most important factor in determining your credit score. Whether you pay your bills on time actually determines a full 35% of your FICO credit score

So, when is a payment considered “late”?  Once you’re 30 days in arrears, the missed payment will likely be reported to the credit bureaus. At that point, your failure to pay on time will appear on your credit report and almost certainly cause a dip in your credit score.  

Even a single late payment can have a significant impact on your score. And, though the effect diminishes over time, that late payment will stay on your credit report for seven years. 

If your payment winds up being even later, your credit score could take an even larger hit. And your unpaid debt could lead to collections. 

The lesson is this: Know yourself. If you don’t trust that you’ll consistently adhere to a strict payment schedule, reconsider getting a credit card. 

Or look into ways you can keep that financial commitment more easily. Create a calendar alert, set up automatic bill pay, or ask a reliable family member to coordinate the payments for you. 

2. You think it’s your only option to build credit. 

Good credit absolutely has its advantages. An impressive score can qualify you for competitive terms on auto loans, mortgages, and student loans. It can save you the hassle of putting down a deposit for your utilities, paying extra for insurance premiums, and convincing a landlord to take a chance on you. 

When you have bad credit or no credit, you — like many people — may believe that getting a credit card is the one and only path to building a strong credit history. And, for that reason, you may feel pressured to get a card when you don’t really want one or feel ready to carry one. 

Fortunately, there are many paths to building credit responsibly without ever needing to use a credit card: 

  • Existing loans: Many American adults already use credit in the form of a loan. Do you have a mortgage, a car loan, or a student loan? As long as your lender reports your payments to the credit bureaus — and most do — your prompt loan payments will fortify your credit history. 

  • Secured credit cards: Unlike a traditional credit card, a secured card is backed by collateral and usually offers a relatively low limit. You may be less likely to be tempted into overspending. And, with different qualification criteria than traditional cards, you may get access to a secured credit card even if you’ve been denied for other cards. 

  • Credit-building services: A credit-builder loan, offered through a reputable financial company, is a small loan made specifically for the purpose of helping you establish a reliable credit history. Consider that option or try a rent-reporting service. They’ll report your prompt rent payments to the credit bureaus who track your credit history. 

  • Apply for a specialized personal loan: Like other types of loans, reliable payment on a personal loan can help you build credit without using plastic. Even without great credit, you may be able to qualify for loans through some specialized lenders. 

3. You plan to use credit in place of an emergency fund. 

An emergency fund contains cash saved specifically for use during a financial crisis — like a job loss, a medical emergency, or damage to your home. 

But couldn’t you just have a line of credit for that same purpose? So, instead of saving all that cash, you simply swipe your credit card if you run low on funds? 

There are actually a number of reasons why you might not want to tap a credit card in lieu of an emergency fund: 

  • Peace of mind: Knowing you have the cash you might need some day can save you significant stress when planning for the future. 

  • Ability to respond instantly to a crisis: With a healthy emergency fund in place, you won’t need to authorize charges that might get flagged or get a cash advance to cover transactions that don’t accept credit cards. 

  • No ongoing debt when the emergency passes: Without savings in reserve, it could take you months or even years to pay off the debt you incur on your credit card. 

  • No high interest or fees: When you’re struggling through a financial crisis, the last thing you need is the compounding costs that come with carrying a balance on your credit card. 

  • No damage to your credit: If you do use your card when you’re low on cash, you could take a serious hit to your credit score if you can’t make your minimum payments on time. 

  • Not your best option for debt: Even if you wind up needing to borrow money during an emergency, there are less expensive options available to you than using a credit card. 

4. You think of credit as fun money. 

When you first get access to a line of credit, it might feel as though you’ve won the lottery. Suddenly, you have the ability to spend several hundreds or even thousands of dollars without having any money leave your bank account! 

So, it’s natural that you might be tempted to view your new credit card as “free money” you can spend on luxuries. 

But remember this: Even though you’re paying with plastic instead of cash, you do have to cover those charges with cash. In fact, ideally, you should pay for those charges in full at the end of each billing period, so you can avoid interest charges. 

Regardless of whether you pay off your bill all at once or over time, treat your card just as you would cash. That is, only make a purchase with your credit card if you’re willing to part with the equivalent amount of money in your bank. 

And what if you don’t have the cash on hand to pay in full — or at least cover your monthly minimums? Consider delaying unnecessary purchases. Those little luxuries won’t seem as sweet if they cost you months to repay with plenty of interest. 

5. The rewards are too good to pass up. 

If credit cards are enticing on their own, rewards cards certainly have extra appeal. After all, whenever you swipe your card, you actually earn something in return. Maybe that’s cash back, travel miles, or points you can trade for gift cards and swag. You might even be offered a hefty bonus just for applying. 

But attractive rewards shouldn’t be the reason you apply for a credit card. 

First, you’ll typically need good or even great credit to qualify for the card. Then, you’ll likely see higher interest rates than non-rewards cards and possibly an annual fee. And if you don’t pay off your balance in full each month? The interest you’re charged will likely cost you far more than the benefit of any rewards you’ll receive. 

Plus, the fine print may catch up to you. Most credit card rewards have caps and limitations, expiration dates, and other types of restrictions. And you may need to set reminders to cash in rewards or sign up for rewards categories periodically. So, while a rewards card can be a great choice for a disciplined credit user, it’s not for everyone. If you’re just starting out with credit or haven’t proved to yourself that you can manage a non-rewards card, skip the added responsibility of a rewards card. And choose the card that’s best suited to your needs.  

Applying for credit is a personal choice that only you can make. But you may discover that getting a credit card doesn’t fit with your needs and goals. You can take advantage of other options to build your credit and set yourself up for financial health. 

The material presented here is for informational purposes only and does not represent specific financial advice to you or your circumstances personally.