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Is it possible to live without credit?

By:  Sean LaPointe | 20th June 2021

There is no doubt that credit is a vital part of many people’s lives. We borrow money for almost everything nowadays, from houses to cars to groceries. And this raises an intriguing question: is it possible to live without using credit? Let’s take a closer look.

What’s the credit situation in the UK?

Data from the Money Charity shows that the average total debt per UK household is £61,435. Credit card debt accounts for £1,945 of this total. 

Simply put, credit and debt are a way of life for many people. A large number of people will have a multitude of credit lines and will use loans to sustain their lifestyles.

The importance of credit: why do most people need it?

The main reason most people need credit is that they simply don’t have the cash to buy or pay for everything they need or want outright. This is especially true when it comes to big-ticket items in life, such as a house or a car.

Without credit, it means delaying these purchases and possibly spending many years saving for them. This is where credit products or loans come into play. Mortgages and car financing, for example, allow you to buy a house or car instantly and then spread your payments over time.

There are numerous other advantages to using credit.

For example, a credit card can help you during an emergency when you don’t have cash. Credit cards also offer purchase protection. Section 75 protects you in the event that something goes wrong with your purchase. Furthermore, some credit cards provide rewards and/or cashback on purchases.

In a nutshell, there are many advantages to using credit and maintaining a credit profile.

Is it possible to live without credit?

The short answer is yes. While using credit wisely can be beneficial for many people and can help them make significant progress toward their financial and life goals, it’s possible to survive perfectly well without credit.

There are actually many benefits to living without credit. It means not having to worry about repayments. When you are credit free, there are no mandatory monthly payments to meet or interest to pay. Living without credit can give you more control over your budget because you have to live strictly on a cash diet.

When you are only using cash, you basically can’t spend more than you have. It’s easy to spiral out of control with credit card debt, but when you don’t have credit, there is no such risk.

To live a life without credit, you will need to be financially stable. You’ll need sufficient cash to pay upfront for everything. If you don’t fit this criterion, then you will most likely have to use credit at one time or another.

What are the challenges of living without credit?

The most obvious challenge, if you are not going to use credit, is that it will take a significant amount of time to save for the things you want or need.

Having no credit history can also cause other major inconveniences and cause you to miss out on some essentials.

Your credit history is used to calculate your credit score. Your score is used as an indicator of whether you are financially responsible and whether you are a good borrower or not. Of course, if you are committed to a life of no credit or loans, not having a credit history or score might not seem like a big deal.

But nowadays, credit scores are increasingly being used by the likes of landlords and employers.

Without a good credit score, you might not qualify to rent certain flats or houses. Or you may have to jump through more loops to prove to a landlord that you are financially capable of meeting your rent obligations. You may also lose out on some job opportunities, particularly if an employer insists on checking your credit history.

Bottom line

Ultimately, it’s possible to live without credit. In fact, whether or not you need credit depends on you and your circumstances.

If you generally lack the discipline to live within your means or pay your bills on time, turning to credit is undoubtedly risky.

On the other hand, if you lack the funds to finance your current goals but can responsibly pay your bills on time, credit can be a useful tool for achieving your goals. 

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