If you have dealt with credit problems in the past, you may have promised yourself that you’ll never borrow again. You might reason that living without credit will be living without credit problems. And while there is some logic to that thinking, life has an almost comical way of going in unexpected directions.
For most people, swearing off credit forever will be an unworkable solution. And for more than a few, it won’t make credit problems go away either.
Don’t get me wrong. Getting rid of your credit cards – all your credit cards – might be exactly what you need to do right now. In fact, for people who have spending problems, I highly recommend taking this step. Just keep in mind that over the long run, you may have to consider other options. Here’s why.
Not Using Credit Won’t Make Bad Credit Go Away
If your credit report indicates a history of bad credit, not using credit going forward won’t fix the situation. It’s true that by cutting the cards, you won’t be making the situation worse. But you have to consider the big picture.
If you have it in your mind to abandon credit completely – as in no longer making payments and ignoring it – you can be setting yourself up for a disaster. Credit problems are one of those issues in life that can’t be ignored. Small credit problems become big credit problems, and the next thing you know you’re dealing with court-ordered judgments. Those can bring seizures of bank accounts and wage garnishments.
The other option is to pay off your existing debts and stop using credit cards at least for a while. While this will help your debt situation, and that’s fine. But you’ll be leaving behind a credit report that’s filled with nothing but bad credit. And bad credit can stay on your report for as long as 7 to 10 years. Even if you try to ignore your bad credit, lenders and other agencies won’t. So you still have to attend to this issue.
It’s Hard to Go Without Credit in the Modern World
It will be very difficult to go through life without credit. Even if you never plan to borrow, there are times when your life will just be easier for having a credit card.
Renting a car is one such example. Yes, there are car rental companies that will rent you a car using a debit card or even cash. But you usually have to jump through fiery hoops to make it happen. And policies on debit cards and cash vary from one company location to another, and are often withdrawn on short notice. (This is an important distinction; even with car rentals that do allow debit cards and cash, the final decision is left up to the local store, who can decide not to accept them.)
Another example is when you’re buying airline tickets. Not only is the process easier using a credit card, but major credit cards often carry valuable travel related life insurance and other perks that are better to have.
There are also situations where you may have to guarantee payment using a major credit card, even if you are not required to make final payment with it.
But beyond credit, few people these days have the savings habit mastered. Unless you have – and you can rely on savings to provide the extra cash that you would normally use credit for – you could be dooming yourself to a life of poverty. Absent credit, you may be unable to pay large unexpected expenses that you don’t have the savings available to do so.
Credit is About More than Borrowing
It’s not just creditors who are looking at your credit report. Insurance companies and especially employers do it routinely. You may need a decent looking credit report and an acceptable credit score in order to get an insurance policy or a job.
If the credit report that you do have shows nothing but bad credit, you may not get the job you’re applying for. Even if you have no credit right now, the potential employer may not be so forgiving in regard to your past credit sins. They may be looking for a demonstration that you have become more responsible credit risk. That’s why it might be important to continue using your cards – but do so responsibly. This way, you’ll build up a positive record to balance out the old poor behavior.
Employers often view your ability to handle credit as an indication of how you will handle assignments and responsibilities once you are hired. A credit report is an indication of how this might go.
What Will You Do When You Actually DO Need to Borrow?
Sooner or later, it’s likely that you’ll need to borrow once again. It could be for the purchase of a car. Maybe you need a mortgage on a house. You may also have to borrow in order to finance the start of a new business. And there’s the increasing possibility that you may have to borrow in order to pay for an uncovered medical expense.
Even if you don’t ever need to borrow again in your life, there is the possibility that someone close to you may need your help in cosigning a loan for one of the above purposes. If the person making the request happens to be a sibling or one of your children, it will be extremely difficult to refuse to help.
If you have no credit, or only bad credit, you may not get the loan that you are applying for and desperately need, or wish to cosign for someone else.
Bad Credit Can Show up on Your Credit Report, Even if You Don’t Use Credit
There’s a non-reciprocal arrangement when it comes to credit reports. With certain vendors, such as landlords, utility companies, phone services, Internet and cable TV providers, healthcare providers, and repairman, among others, your good payment history will never be reported on a credit report. But any bad credit episodes will!
This can happen if you don’t make a payment, or if you refuse to make a full payment. Any vendor can turn an unpaid balance over to a collection agency. And either the vendor or the collection agency can report the issue to one or more of the credit repositories as a derogatory entry. That means that you will have bad credit, even if you don’t use credit at all.
This is another reason why you need to have credit, even if you don’t want it. Since derogatory credit information is bound to show up on your credit report, you will be better served by having a number of positive credit entries showing up in your credit report to offset the negatives.
This is why swearing off credit is never the solution to your credit problems. Stop using the cards? Maybe. But ignore your credit file? Never.
The only way to deal with credit problems, is to actually fix them. If you feel overwhelmed by the task – and that’s perfectly understandable – get professional help. You can engage the services of a law firm that can repair your credit and make it legal. There’s no reason to let bad credit sit on your credit report for years, or for you to avoid using credit in the future.