You may have a damaged credit profile and be unable to qualify for a regular credit card. Or you may simply wish to avoid taking on high interest credit card debt. In either case, you don’t have a credit card and won’t be obtaining one anytime soon. Nonetheless, you still need access to some means of receiving funds and making payments. One or more of the alternatives listed below could allow you to conduct all the financial transactions you need – no credit card required.
Alternative Payment Platforms
Alternative payment platforms allow individuals to transfer funds to friends and family as well as make payments and complete online financial transactions. PayPal and Amazon Payments are two of the best known alternative payment platforms. Less well known platforms include Dwolla and Skrill (formerly Moneybookers). Some alternative payment platforms issue their own debit cards, which allow users to withdraw cash from ATMs.
Related: Best Prepaid Credit Cards of 2016
Many people use the terms charge card and credit card interchangeably, but the two represent two distinct types of cards. Unlike credit cards, which are a form of revolving debt, transactions made with charge cards must be paid in full at the end of each billing cycle. However, charge cards are not a viable option if your credit is really bad.
Gift cards that bear the logo of a major credit card are generally accepted nearly everywhere credit cards, debit cards and prepaid cards are accepted. However, a major disadvantage is that gift cards have a fixed value and cannot be reloaded. In addition, gift cards that do have the user’s name embossed on them are often not accepted in establishments such as hotels.
Checking Account Alternative Cards
A significant portion of individuals without credit cards are also un-banked or under-banked. That is, they have no bank accounts or they only have savings accounts but not checking accounts. Cards like American Express Bluebird fill a void by allowing cardholders to deposit funds – including their paychecks – onto the cards and access cash through ATM withdrawals, in addition to being accepted as a form of payment. High fees represent the main drawback to such cards.
Checking Account Debit Cards
Many banks and credit unions issue debit cards to their customers and members that bear either the Visa or MasterCard logo. Such cards are more convenient than checks and less risky to carry around than cash. One drawback is that checking account debit cards that are lost or stolen leave cardholders vulnerable to the risk of having their entire accounts drained. However, protections exist to minimize or eliminate that risk, provided cardholders act quickly to inform their financial institutions.
Automated Clearing House (ACH) Transfers
If you write a check, the odds are good that your payment will be converted electronically and processed through the Automated Clearing House (ACH) system. Using ACH transfers largely eliminates the “float” that used to exist between the date a check is written and the date the check is presented at the bank for payment. ACH transfers are also frequently used for online bill payment services and online shopping.
Do you have a Smartphone? If so, you possess the means to conduct financial transactions at retail establishments as well as for transmission of funds to and from friends and family members. The best known electronic wallets include ApplePay and Google Wallet (which recently acquired Softcard). The advantage of electronic wallets is that they can include information from several different prepaid cards, debit cards – or credit cards, so you can leave your physical cards at home.
Prepaid Debit Cards
Prepaid debit cards look like regular credit cards and operate in a similar fashion. However, the credit limit for prepaid cards is limited to the amount loaded onto them by users. The advantage of prepaid cards is that it’s impossible to rack up credit card debt. The disadvantage is that prepaid cards are not reported to credit reporting agencies, and therefore cannot be used to improve your FICO score.
Rewards Debit Cards
Rewards programs are among the most popular perks associated with regular credit cards – a perk generally not shared by debit cards or prepaid credit cards. However, a few prepaid credit cards and debit cards do feature rewards or cash back programs. Some rewards debit cards are associated with alternate payment platforms, such as PayPal, others are affiliated with banks – perhaps even your bank.
Secured Credit Cards
If you don’t have credit cards due to damaged credit, obtaining one or more secured credit cards is a savvy way to begin to get your credit back on track. Unlike prepaid credit cards or debit cards, secured credit cards are real credit cards. However, the credit limit for secured credit cards is limited to the amount users have deposited, which can be a means of imposing financial discipline.
Choosing a Credit Card Alternative
It should be obvious that credit card alternatives cannot be viewed as credit card replacements. Users may need more than one alternative financial tool to be able to deal with all their financial transactions. Nonetheless, the list above demonstrates that it is indeed possible to function in the 21st century without credit cards.