Uncredited: I Don't Have a Credit Card, and Maybe You Shouldn't Either On Credit Cards and Avoiding Debt in a Debt-Ridden Nation
As our nation comes to terms with the possibility of its credit score being downgraded, a reflection on never having credit debt in the first place.
Though America is a deeply religious country, as of late it seems like our normal sins—greed, pride, etc.—have taken a backseat to a more secular offense: debt. As everyone knows by now, Washington is in the throes of a major battle over debt: how much of it we have and how much more of it we’re willing to take on in the years to come. With Republicans standing obstinately against any plan that would ask corporations and the country’s richest citizens to pay more taxes, the United States is approaching a very real precipice: It’s unlikely that we’ll default on our loans, but it’s very possible that Standard & Poor’s, the world’s foremost credit rating agency, will downgrade America’s impeccable bond rating. Basically, we’re going to get bad credit, and, as any doting mother will tell you, that’s a disaster.
My mother is certainly worried about credit. I know because she tells me constantly. “There’s nobody your age like you, son,” she says whenever my finances come up. “What are you doing?”
I’m almost 30 and I’ve never had a credit card.
For all of her haranguing, my mother’s example is a big part of the reason I feel the way I do about credit cards. Even before it became the primary talking point in D.C., I’ve been wary of debt. My parents were pretty sensible with their money, and they relentlessly pounded into my head that a person is not the stuff he owns. But my mother is also a realist, and she knows that though I shouldn’t buy a lot of stuff I don’t need, society is built in a way that even having bad credit is preferable to having no credit.
But bad credit can be bad, too. I have a friend who applied for a credit card when she was in college because she was hungry and the card merchants were giving away candy bars. She got a Snickers and, two weeks later, she had a rectangular piece of plastic that allowed her to spend money she hadn’t really earned. When I saw her in Europe several months later, she’d used that card to get her all around Italy, to the tune of thousands. “Are you sure that’s wise?” I asked her. “Free money,” she said. “Well, not totally free.”
Nowadays I have some student loans, but I’ve been fortunate enough to never need much else in the way of borrowed money. I buy what I can afford at the time; I don’t buy what I think I’ll be able to afford eventually. It’s surprising even to me that despite my meager spending, I don’t feel I lack for anything. I’m occasionally unable to purchase things with the same immediacy as my friends with credit cards, but not being beholden to Visa or Discover or American Express is important to me.
More than 75 percent of Americans use credit cards, and 44 percent of households have credit card balances they need to pay off. According to the Federal Reserve, U.S. credit card users now have $721 billion in outstanding balances; that’s more than $2,300 for every single man, woman, and child in the United States. For a nation that’s ostensibly so disgusted with debt, we sure do have a lot of it in our personal lives.
Not only that, we continue to support the credit card companies that bet on us failing. The worst thing that could happen to the credit industry would be for all their customers to decide en masse to pay their credit card bills on time. What a disaster it would be if they couldn’t charge interest on families in the red. In the old days, usury was illegal in Christian churches. Today millions of Americans get stuck during the holiday season paying off credit card debt from the Christmas prior, and then racking up even more debt on a lot of presents.
“My father paid cash for the house I grew up in, a place in Boston in the late '70s when real estate there was really cheap,” says Richard Lawson, a 28-year-old writer for Gawker Media who also has no credit card. “That's the ideal I aspire to.”
Lawson says his experience with his first credit card, a GAP card, turned him off completely. “I bought one pair of pants with it, to get the discount or whatever, and then kind of forgot about it,” he says. “Then I got a bill, and I just didn't like that I still owed money even though it felt like I'd already bought something. It was an uneasy feeling.” He’s since not gone back to the credit pool, a decision that worries his mom the same way it worries mine.
“My mother and some friends harp on me about it, for the credit-building reason. Which frustrates me,” he says. “I've often said, ‘But why is having no credit a bad thing?’ I mean, I get why it is, but it feels like you have to enter into this closed system that's really hard to jump back out of.”
The lectures Lawson gets are the same ones I’ve always heard: “If you don’t get credit you’ll never be able to buy a house” or “If you don’t get credit you’ll never be able to take out a car loan.” It’s the scary story accountants tell around their campfires: the maniac who ruined his life by never acquiring credit. But how much of that is true?
“It is difficult to get a great loan if you don’t have a credit history at all, but that doesn’t mean you have to have a traditional credit card,” says Kim McGrigg, spokesperson for Money Management International, a nonprofit organization dedicated to educating consumers about smart financial practices. “Your student loan, your car payment, your mortgage. Those are all on your credit history, and you don’t have to have a credit card on your record to have good credit.”
McGrigg says credit cards are great for emergencies—say if you get a flat tire in the middle of the desert—but she adds that “if you have some savings or other financial safety net then it’s very possible to live without a credit card.”
Unfortunately, many landlords and banks still don’t feel that way. Lawson says that, after years of going without a credit card, he’s thinking of getting one because it’s become impossible to pass a credit check to get a lease on an apartment in New York City.
“Only my roommate is currently on my apartment’s lease because of my no credit situation,” he says. “I'm hoping to live on my own in my next place, and that could prove difficult without a card. If I do get one, my plan is basically to buy two things a month with it—inexpensive things—and just pay that off. But I worry it will feel like I caved to the money man.”
It’s a frustrating world for those of us who have intentionally opted out. When it comes to buying or leasing homes and other big-ticket items, we’re penalized for a history of living within our means and buying only what we can afford. Financial asceticism is supposed to be virtuous in America, especially in the midst of a political clime that denounces debt like it’s some kind of domestic terrorism. But when it comes to credit cards, we’re unwilling to put our Amex where our mouth is.
“It’s become ingrained in us,” says McGrigg. “Getting a credit card has almost become like a right of passage. And while I do think credit cards can be helpful, people should know that you don’t have to have them. Having a credit card and being an American are not tied together.”
Try telling that to my mom.
photo (cc) via Flickr user 4nitsirk