You don't need a credit card to live, but you may need one to build credit
A credit card is not required to pay for things, get a loan, or rent an apartment. You can use cash, debit cards, and bank transfers for everyday spending. But if you want to build a credit history — the record lenders use to decide whether to lend you money and at what rate — a credit card is one of the most straightforward ways to do it. Without a credit history, you may face higher interest rates on mortgages and car loans, or be denied for credit altogether.
The real question is whether you need one right now, given your situation. That depends on whether you need to borrow money soon, whether you already have a credit history, and whether you can use a card without overspending.
Key Takeaways
- A credit card builds your credit history only if you use it and pay the bill on time; paying cash or using a debit card does not build credit.
- You need a credit history if you plan to borrow money for a car, home, or other major purchase within the next few years.
- If you have no credit history and need to borrow soon, a secured card or becoming an authorized user on someone else's card are faster routes than waiting.
- A credit card only helps your credit if you pay the full balance or at least make your minimum payment on time every month.
- If you tend to overspend or carry a balance you can't pay off, the interest charges and debt will cost you far more than any credit-building benefit.
When you need a credit card to borrow money
Lenders check your credit history before they lend you money. If you have no history — no record of borrowing and repaying — many lenders will either deny you or charge you a much higher interest rate. A mortgage lender, for example, may require a credit score of at least 620, and the difference between a 620 score and a 750 score can mean tens of thousands of dollars in interest over the life of a loan.
If you plan to borrow money within the next two to three years — for a car, a home, or another major purchase — you should start building credit now. A credit card is the fastest way to do it, because lenders report your payment history to the credit bureaus every month. After six months of on-time payments, you will likely see your score rise. After two years, you will have enough history for most lenders to consider you.
If you have no plans to borrow money, you do not need a credit card. You can pay for everything with cash or a debit card, and you will not need a credit score.
What happens if you already have a credit history
If you have already borrowed money — taken out a student loan, car loan, or mortgage, or had a credit card in the past — you already have a credit history. Lenders can see your payment record, and you have a credit score. In this case, you may not need another credit card unless your score is low or you want to improve it further.
Check your credit report before you decide. You can get a free copy once per year from each of the three major credit bureaus — Equifax, Experian, and TransUnion — at AnnualCreditReport.com. Look at your payment history and the total amount you owe. If you have been paying on time and your score is already in the 700s or higher, a new card will not help much. If your score is lower, or if you have missed payments, a new card with on-time payments can help rebuild your score over time.
How credit cards build credit differently than other borrowing
Credit bureaus track several things: whether you pay on time, how much you owe compared to your credit limit, how long you have had credit, and the types of credit you use. A credit card shows all of these. When you use a card and pay the bill on time, the lender reports that payment to the bureaus. Over months and years, this creates a record that you can be trusted to repay.
A debit card does not build credit, because you are spending your own money, not borrowing. A bank account does not build credit either. Even if you have had the same checking account for ten years and never overdraft, that history is not reported to the credit bureaus. Only borrowing and repaying — credit cards, loans, mortgages — builds a credit history.
This is why someone with a high income and a large savings account can still have no credit score: they have never borrowed money. And this is why a credit card, used responsibly, is one of the fastest ways to build credit from scratch.
The cost of using a credit card if you carry a balance
A credit card only makes financial sense if you pay the full balance each month. If you carry a balance — pay only part of it and leave the rest for next month — you will owe interest. Credit card interest rates are typically between 18 and 25 percent per year, much higher than a car loan or mortgage.
If you charge $1,000 and pay only the minimum payment each month, you could spend $200 to $300 in interest before the card is paid off, depending on the rate and the minimum payment. That interest is the cost of borrowing money from the card company. It does not help your credit score; it just costs you money.
Before you open a credit card, be honest about whether you can pay the full balance each month. If you tend to overspend, or if you are already struggling with debt, a credit card will make things worse, not better. In that case, focus on paying down what you already owe before you add a new card.
Alternatives if you need credit but don't want a credit card
If you need to build credit but are worried about overspending, or if you have been denied for a regular credit card, there are other routes.
A secured credit card requires you to put down a cash deposit — usually $200 to $2,500 — which becomes your credit limit. You use the card like a regular card, but the deposit protects the lender if you don't pay. After six to twelve months of on-time payments, many issuers will convert it to a regular card and return your deposit. Secured cards report to the credit bureaus just like regular cards, so they build credit at the same speed.
Becoming an authorized user on someone else's credit card is another option. If a family member or friend adds you to their card, their payment history may be reported under your name, which can boost your credit score without you having to open your own card. This works only if the primary cardholder pays on time; if they miss a payment, it will hurt your score too.
A credit-builder loan is a small loan designed specifically to build credit. You borrow a small amount — usually $500 to $1,000 — and make monthly payments. The lender holds the money in a savings account while you pay it back. Once you have paid it off, you get the money back. Credit unions often offer these loans at low cost.
Questions to ask yourself before opening a card
Before you open a credit card, answer these questions honestly:
- Do I plan to borrow money in the next two to three years? If no, you do not need a card.
- Do I already have a credit history? If yes, check your score first to see if you need another card.
- Can I pay the full balance every month? If no, a card will cost you money in interest.
- Will I be tempted to overspend if I have a card? If yes, consider a secured card or credit-builder loan instead.
- Do I have the discipline to keep the card in a drawer and use it only for small, planned purchases? If yes, a card can work for you.
Frequently Asked Questions
How long does it take to build credit with a credit card?
Most credit bureaus need at least six months of payment history before they calculate a score. After six months of on-time payments, you should see your score rise. After two years, you will have enough history for most lenders to consider you for a mortgage or car loan. The longer your history, the higher your score can go.
What if I have bad credit or no credit — which card should I get?
If you have no credit history, a secured card is usually the best starting point. If you have bad credit from missed payments or high balances, a secured card can also help you rebuild. Look for a card with a low annual fee (or no fee) and one that reports to all three credit bureaus. Avoid cards that charge high upfront fees, because those eat into your deposit.
Does opening a credit card hurt my credit score?
Opening a new card causes a small, temporary drop in your score — usually 5 to 10 points — because the lender makes a hard inquiry into your credit. This drop goes away within a few months. The benefit of on-time payments over time far outweighs this small initial dip.
Can I build credit without a credit card?
Yes. A credit-builder loan, a secured card, or becoming an authorized user all build credit without a regular credit card. You can also build credit through an auto loan or mortgage, though those require you to borrow a larger amount. The key is that the lender must report your payment history to the credit bureaus.
What if I can't afford to pay the full balance?
Do not open a credit card. The interest charges will cost you far more than any credit-building benefit. Instead, focus on paying down any existing debt, and then consider a secured card or credit-builder loan once you have some savings set aside.