Life without Credit: Why You Should Reconsider

Young adults are, more than ever before, opting not to make use of credit. They’re not applying for credit cards or loans or lines of credit at all, choose to live on cash instead. This is a great way to avoid getting yourself in over your head in debt, but is it the best thing for your financial security?

To answer this, we need to consider several situations most Canadians find themselves in at one point in their lives or another:

Homeownership

If you ever want to purchase a home in Canada, you’re going to have had built up some credit history beforehand. If a lender is going to consider whether or not to lend you the money to purchase your home, they are going to need to be able to see what your habits are with regard to paying back debts you owe. You need a few years of good credit behaviour behind you in order to just get your foot in the door. The longer, better, and more diverse your credit history is, too, is going to have a direct effect on the interest rate you get from your lender. Having no credit at all is going to set you back a few years in your plan to purchase a home.

Emergencies

If you’re a smart saver, you’ve probably already got an emergency fund stashed somewhere just in case. It’s probably worth a few months expenses, and that’s one of the most important things you can do when it comes to your financial security. It’s going to protect you if you ever lose your employment or the ability to work for any period of time, for sure. Sometimes, however, we experience emergencies that drain even our emergency fund. Suddenly needing a new vehicle unexpectedly, for instance. If you rely on your vehicle for work, and your car dies, getting a new one ASAP is going to be made much, much easier with good credit. You’re also going to pay less in the long run for a financed car if you borrow it with a good credit rating.

Travel

While most travel can be done without credit cards, it takes some planning, which rules out easy, drop-of-a-hat travel that may be the result of an emergency or work requirement. You never know what’s going to happen around the bend and having access to credit, even if you don’t use it, is going to make it happen more smoothly.

Applying for work

Increasingly, more and more employers all over the world are looking at your credit before deciding who to hire. While it is less common in Canada and the rules don’t make it easy, it still happens. If you have no credit, there is not much information there that a potential employer can see and they may opt, instead, for the less experienced candidate with a more solid credit history.

Rentals

Landlords are also beginning to use credit checks to determine whether or not you’re going to pay your rent on time every month. If you have no credit history to assess, you could be limiting your ability to find a place to live.

These five situations alone make credit a useful tool for life in Canada, but there are plenty more. The thing about credit though, is that if you manage it properly, it can cost you very little and you’ll still be able to build a great credit score. Having credit only means having debt if you use it irresponsibly by spending beyond what you can afford to spend. A few good habits and you can make credit work for you instead.

Have you avoided getting credit in the past? Let us know in the comments!