I talked to another GNXPer recently who didn't have a credit card. Until last year I didn't have one either. My theory was that I lived within my means, have few expenses, was healthy, etc. etc. I know plenty of people like me, young, intelligent and not too interested in signalling with positional goods and such, who didn't get caught up in the real estate craze, and so made a calculation that there was no need for credit (at least for the time being).Disregard the issue of needing to build good credit for a moment. I've had a credit card since turning 18, despite the personal irrelevance of my credit score, since I've never borrowed money (and never will borrow money) for anything in my life. Yet credit is the virtually exclusive way I go about paying for stuff. As long as you're not so interested in signalling with positional goods that you find yourself unable to pay off your balance each month, there are no reasons not to have a credit card and several economic costs incurred by way of not having one:
- You forgo the TVM advantage of being able to enjoy your half of an economic transaction now without having to pay for it until later. If you have $2,000 a month in total living expenses and it all goes on the card, you're holding $1,000 for 30 days longer every month, give or take. At 6%--which, a couple of years ago was attainable with the safety of a money market--that's $5, twelve times a year. Additionally, if uncertain circumstances create a need to pay for something immediately but for which you lack the necessary funds in your account until tomorrow, it doesn't present a problem.
- So $60 is chump change, not even worth thinking about over the course of a year. Au contrare! It buys me this and this. And anyway, it's effortless. Receive statements online, tie them to a liquid account with online bill pay, and a month's worth of stuff is taken care of with a couple clicks of the mouse. That's less of an energy expenditure than is fumbling around with paper bills or punching in your PIN repeatedly. More and more retailers are moving away from even requiring a signature on small credit purchases.
- Speaking of fumbling around with bills, plastic means you don't have to. No more getting nickel and dimed to death by losing the nickels and dimes given to you in change. Debit cards provide this benefit as well, of course, but if your debit card is lost or stolen, you risk your account being cleaned out without much in the way of recourse. With credit, if you didn't make the purchase, you're not on the hook to pay for it. In reality, it's not quite that simple, but the debt obligation lies with the card provider, not the account holder, and the major players--Visa, Mastercard, Discover, and especially American Express--will, for their own good, go to bat for you.
- There are a slew of different bonus and rewards programs for credit card users to take advantage of. If frequent flyer miles don't elevate you, go for cash back to the tune of 1-2%. That's free money*.
- It's the quickest, easiest way to do business online. While services like Paypal are also convenient, if the item shipped is defective (or never shows up), securing a refund is more of a hassle (not to mention more of an open question) than it will be if you had paid with credit.
* Sort of like government-provided universal healthcare is free. Retailers and service providers essentially remit around 2% of each transaction price paid via credit to the card providers for the 'privilege' of being able to accept their plastics as a form of payment. In the case of products with razor thin margins, like gasoline, in practice this often means Visa is making more revenue on the sale than the retailer is making in profit. This is a cost imposed on retailers and service providers that is factored into the prices they charge for the things they provide. Thus those who pay with cash (no fees) and debit (lower fees) are subsidizing those who use credit. What, do you feel a fiduciary obligation to Macy's? Or Macy's high-risk cash customers? Use your damned credit card! It's one of the few ways you, as a prudent, self-reliant person, are able to be rewarded for your self sufficiency, rather than being punished for it.