Think You Don’t Need a Credit Card?

You know, I read an interesting study the other day about Millennials and credit, and in the study, it stated that Millennials utilize personal loans at a rate of 98% higher than the previous generation, and they open auto loans at a rate that’s 21% higher than the previous generation, but they also open far less credit card accounts, averaging two less credit cards than their parents.  At first glance, those credit card statistics sound pretty good, don’t they?  But does it really make sense not to have some credit readily available on credit cards?

While a personal loan looks good on paper, what with the lower interest rate and all, there are drawbacks that you might want to consider before you decide not to open any credit card accounts.

First and foremost, available credit on a credit card is instantly available. Unlike a personal loan, which can take a couple of days between the time you apply and the time the money is deposited into your bank account, the amount of available credit that you have on a credit card is available at all times, day or night, regardless of where you happen to be at the time (ever had an emergency when you’re on a road trip – a personal loan doesn’t work at 3:00 am when you’re 300 miles from home).

Secondly, with a credit card, you can actually pay the balance off every month if you so choose and never pay a penny’s worth of interest.  That’s not the case with a personal loan.  Even though the rate on a personal loan is usually substantially lower than a credit card, you’ll still pay interest on the principal every month.  Over time, even that lower interest rate will add up.

And finally, even though many personal loans are reported to the major credit bureaus, not every company does, and what’s reported won’t show available credit, so your credit score may be impacted by not having any readily available credit (that’s about 30% of your credit score).

So, what should you do if you’re trying to limit your reliance on credit cards?  The answer is pretty simple – get at least one good credit card, use it sparingly, and pay off the balance every month!  That way, you’ll have the benefit of instantly available credit when you need it, but you can opt to pay no interest at all just by paying the balance in full when it’s due.

How a Personal Loan Works

What is a personal loan and how does it work?

A personal loan, or signature loan as it was once referred to, is typically an unsecured loan, meaning that you simply sign your name and the money is yours.  You do not have to post any type of collateral, such as the title to your car or the deed to your home. Unlike a home mortgage or automobile loan, there are generally no limitations placed on how you spend the money that you’ve borrowed, meaning you can use it for larger home purchases (new furniture, carpet, etc.), car repairs, debt consolidation, Christmas shopping, or even that tropical vacation you so desperately want to take!

Personal loans are an excellent way to borrow money if your creditworthiness is such that you can gain the approval needed to borrow the sum of money for which you have applied. Once you have been approved and actually receive the funds from the lender, you will be required to pay the total amount of the loan back, with interest and any applicable loan fees, usually in regular installment payments over a period of time. Since the loan amount, interest rate, and fees can vary widely from lender to lender, it’s wise to do your homework and shop around for the best deal.

At, we recommend personal loans – not only do they offer some of the options around, but checking to see if you qualify usually won’t hurt your credit score!