Can You Live Without a Credit Card?

Using a credit card has become a normal part of our daily lives. In fact, according to a 2024 Canadian Consumer Credit Card Report by Nerdwallet, about 69% of Canadian adults used credit cards for essential purchases over the past year.

Additionally, over half of Canadian adults (55%) currently carry credit card debt. While there are many pros and cons to credit cards, if you want to avoid being part of that 55%, you might be wondering if it’s better to just live without one.

While it might seem challenging, given how common credit cards are, it is possible to live without one. If you’re the type of person who does most of their shopping in person, you can simply pay cash. But seeing as our society thrives on using cards instead of cash, you’ll still need something to help you out.

Fortunately, there are some great alternatives to credit cards, such as debit cards, prepaid cards, and charge cards. These card options let you make cashless payments just like credit cards do. If you’re okay with giving up rewards to avoid credit card debt, these alternatives can be a fantastic choice.

Debit cards

Debit cards are a convenient alternative to cash or checks. Issued by your financial institution, they are linked directly to your checking or savings account.

You can easily use your debit card to make in-store purchases, and you can even use most debit cards nowadays to make purchases online, just like a credit card.

Plus, they also allow you to withdraw money from ATMs for those times when you would like to keep a bit of cash on hand.

Unlike credit cards, where you’re borrowing money that you need to pay back later, debit cards let you access only the money you already have in your bank account.

For example, if you spend $250 on groceries or a couple of new outfits, that amount is immediately taken out of your account.

While it’s possible to overdraw a little beyond your balance, your bank will stop transactions once you reach a certain overdraft limit.

Although the overdraft limit and fees vary by financial institution, which you can often avoid with overdraft protection coverage, you don’t face the same risk of overspending thousands of dollars by maxing out your credit limit on credit card purchases.

One downside of using your debit card over credit cards is that most debit cards do not offer the types of rewards or benefits that a credit card would.

Many credit card perks include rewards when you spend money, like cash back, points, or miles that you can use to redeem merchandise, groceries, gift cards, travel, and more.

Also, many credit cards offer various types of insurance, such as extended warranties, purchase protection, and even travel insurance.

Prepaid cards

Prepaid cards are kind of like a cross between a debit and a credit card. They work similarly to debit cards since you’re using your own money to pay for things, and you can use them to withdraw money from an ATM.

You can even have your paycheck deposited onto one by your employer. Prepaid cards are also similar to credit cards in that they are accepted by many merchants both online and in person because major companies like Mastercard or Visa often back them.

However, unlike debit cards, prepaid cards aren’t linked to your bank account. Instead, you load a specific amount of money onto the card, which sets your spending limit.

You can then use the card until the money runs out, and then you’ll need to reload it with more funds to continue using it.

This means that, like debit cards, prepaid cards don’t carry the risk of credit card debt because you’re spending the money that you’ve loaded onto the card.

Most prepaid cards, like debit cards, don’t offer many rewards or perks beyond being a credit-free way to pay.

However, some prepaid cards, like KOHO, do offer cash-back rewards.

With the KOHO prepaid Mastercard, you can earn up to 6% cash back when you shop with your card in-store and online. Plus, the KOHO app can help you track and budget your money more effectively.

Charge cards

Canadians aren’t very familiar with charge cards since there are very few available in the country. In fact, American Express is the only company that issues charge cards in Canada.

Charge cards don’t have pre-set spending limits. Instead, providers like American Express allow cardholders to spend based on what they believe the user can afford to pay off each month, considering payment history and reported income.

This means charge cards generally offer more purchasing power than credit cards, which have strict spending limits.

However, having no official pre-set limit doesn’t mean unlimited spending. Depending on your financial situation and how you use the card, there can still be spending caps, and you might need authorization for larger purchases.

Typically, you’ll need to build a good relationship by consistently paying off your charge card in full for a few months before you can fully utilize its higher spending potential.

The thing with charge cards is that they need to be paid off in full every month. If you don’t pay the entire balance, you’ll face steep penalties. Your account could be marked as delinquent, and you’ll incur very high-interest charges. In some cases, if you consistently carry over balances, your charge card account may even be closed.

Can you build credit without a credit card?

Yes. In fact, there are several ways you can build your credit and establish a positive credit history without a credit card. You can apply for a loan, open a line of credit, or become an authorized user on someone else’s credit card.

You can even build your credit history by making monthly payments on certain types of bills. Managing these options well can help you build up a good credit score over time.

Apply for a personal loan

Personal loans can be a good way to build credit without getting a credit card. By making on-time payments, you can improve your credit score. Before taking out a personal loan, make sure you can afford the monthly payments. Missing payments will hurt your credit score.

Personal loans can sometimes come with higher APRs, especially if you have limited credit history or past defaults, but they can help you establish a solid credit foundation.

While not all personal loans are easy to qualify for, there are many options available for those with limited or poor credit, such as having a co-signer.

If you have a co-signer on your loan, the lender can consider the co-signer’s credit score instead of yours. This might help you qualify for a loan that you wouldn’t get on your own and possibly get better loan terms.

Lenders are more likely to approve a loan with a co-signer who has a good credit history because if you don’t repay the loan, the co-signer becomes responsible for the payments.

Apply for a credit builder loan

If you have little credit history or bad credit, getting approved for a personal loan can be tough. In that case, a credit builder loan might be a good option for you.

A credit builder loan usually ranges from $300 to $1,000. The lender places the full amount into a secure account, and instead of using the money right away, you make fixed monthly payments until the loan is paid off.

Once you’ve completed the payments, you receive the loan amount back minus any fees.

Credit builder loans are a great way to build credit because you’re making regular payments without spending extra money.

They’re also easier to qualify for than typical loans or credit cards since you’re not borrowing money upfront. Your payments are reported to the credit bureaus, which can help improve your credit score.

Look no further than KOHO to help you build credit. On average, KOHO Credit Building users see their credit scores increase by 22 points after just three months!

KOHO’s Credit Building feature offers three ways to help you build your credit history: Credit Building, Flexible Credit Building, or a combination of both.

To sign up, just open up a KOHO account, and then you can easily enroll in whichever credit-building feature suits your needs.

Credit Building costs $5, $7, or $10 per month, depending on your account type, and if you’re interested in Flexible Credit Building, it’ll require a security deposit between $30 and $500 with a $5 monthly service fee.

Plus, with a KOHO account, you can check your credit score for free.

Become an authorized user

Do you know someone trustworthy with good credit, like a parent or spouse? If so, you might consider asking them if you can become an authorized user on their credit card.

Many credit card companies let you add authorized users to your account. As an authorized user, you get a physical card and can use the main cardholder’s line of credit without a credit check.

As an authorized user, you can use the card to make purchases, but the primary account holder is responsible for paying the bill. Their good credit habits can help you build and improve your credit scores.

Usually, no credit check or application is required to become an authorized user.

This setup allows you to benefit from their good credit habits and build your own credit history. However, keep in mind that any negative credit behaviour from either of you will affect both of your credit scores, so it’s important to practice good financial habits.

Pay your bills on time

Credit bureaus understand that loans and credit cards only give part of the picture when it comes to a borrower’s financial health. Paying other bills on time, such as rent, utilities, and your cell phone, can also show financial stability.

Because of this, credit agencies are often willing to include these payments on your credit report as part of your credit score.

Rent payments are not always automatically reported to the credit bureaus, however. If you rent a house or apartment in Canada, one way to have it reported is through The Landlord Credit Bureau (LCB), a rent payment reporting agency.

Both you and your landlord need to join the LCB to report rent payments to Equifax.

What if I do want a credit card, but I have bad credit?

Don’t worry; there are options for you, too. In fact, instead of avoiding credit cards altogether, it might be more beneficial to learn how to use them wisely.

By managing a credit card responsibly, you can improve your credit score without falling into debt. If you think you’re ready to handle your first credit card, then a secured credit card might be right for you.

Secured credit cards

Secured credit cards work just like traditional ones. You can make purchases, pay bills, and build your credit history by using the card responsibly and paying off your credit card balance.

The only difference is that they require a cash deposit, which acts as collateral for the card. This deposit guarantees the card issuer will be covered if the cardholder defaults on payments.

Your deposit amount then typically sets your credit limit. For example, if you deposit $500, you can spend up to $500 on your secured card.

Because you must provide a cash deposit, these cards are generally easier to qualify for than traditional unsecured credit cards.

In fact, you can even find guaranteed approval secured credit cards, meaning as long as you meet their qualifications, you’re guaranteed to be approved for one.

Secured credit cards are ideal for individuals with limited or poor credit history or those looking to build or rebuild their credit. Then, after a while of proven responsible card use, you may be able to qualify for an unsecured credit card.

The bottom line

If you’re looking for ways to live without a credit card, you have a few options, like using a debit card, prepaid card, or even a charge card.

If you’re hoping to also build your credit without using a credit card, you’ve got options, too, like applying for a credit-building loan, becoming an authorized user, and making sure your bills and rent receive on-time payments.

If you want to build credit, earn interest on your spending and savings, and get cash back on your daily essentials, then KOHO might be just what you need.

KOHO isn’t a credit card or a bank; it’s a free-spending and savings account that comes with a prepaid reloadable Mastercard and a mobile app to help you manage your money.

Then, by adding KOHO Credit Building to your account, watch your score go up every month with free credit score checks.