"okay class who wants to present first"
I agree that learning to spend only what you have is an invaluable life lesson!
However, I can say with complete confidence that having no credit history whatsoever is much worse than using a credit card responsibly. If you go to purchase a car, obtain a loan, rent an apartment, or take out a mortgage, and the company sees that you have never proven that you can purchase something and pay it off a month later, they have no clue how you actually manage your money.
They would need some other proof that you are reliable, because they cannot look into your bank account to see what kind of sweet cash money you are holing up in there—what they can look at is a government-provided credit score that gives them an unbiased look at how responsible you are. If a credit score doesn’t exist, they need to cover their own butts and err on the side of caution with you, no matter how upstanding a citizen you are!
Anon, you are absolutely right—it’s best to avoid debt whenever possible! However, debt is absolutely inevitable to get an education or buy a new set of wheels or purchase a house…and that inevitability is why credit scores became a thing, to cover all incomes and life situations.
I work in financial services and yup, having no credit is actually a pretty big concern.Basically, if there is no credit history, the default conservative assumption to use is that person is a risky borrower—after all, they have no data on repayment history. This is especially concerning for lower-income populations that tend to use debit cards more as a way to avoid debt, as it’s likely that they will get less than favorable interest rates.
This doesn’t matter if loans aren’t necessary, but the fact is, most people get loans to buy houses and other large purchases, and having no credit history means that interest rates will be higher.
If you think about it in terms of trust, it might be easier. By taking on some level of debt and repaying on time, you’re showing that you can be trusted with money. But if you don’t trust yourself to not overspend and avoid debt, why would anyone else trust you to do so when you need it?