Is credit necessary? For some in the personal finance field, the answer is actually a no.

People have proven that it’s possible to live a life without using credit yet, the average US household carries a little over $130,000 in debt — $15,000 of that debt is carried on credit cards. So what’s the deal? If it’s possible to live without credit, why aren’t more people doing it?

The subject of needing a credit score is a highly debatable topic.

There are some personal finance experts who shun debt of any kind and then there are others who encourage responsible use of credit as a tool to enhance finances. It’s hard to determine who’s right and who’s wrong when plausible arguments are being made on each side. Here is an easy way to determine if you actually need credit.

Let’s start by defining credit and how it fits in your plans

According to Investopedia, credit is a contractual agreement in which the borrower agrees to pay for something of value at a future date with interest. There are two types of credit, secured debt and unsecured debt. Secured debt means the item being purchased (example: a home) is used as collateral against the amount borrowed. Unsecured debt (example: medical debt or credit cards), involves no collateral.

To determine if you need credit, ask yourself the following:
What are your goals?
What are your plans and how will you obtain them?
Do you want to own a home in the future?

Unless you have $100,000+ sitting around, it’s common for individuals to take out mortgage loans for home purchases. If you plan to use a mortgage to finance your dream of having a home, you  need credit.

What are the benefits of utilizing credit?

If used responsibly, credit can determine the outcome of many areas of your life. Creditors use credit history to determine creditworthiness of potential customers. Employers check credit to measure the character of candidates. Property owners use credit history to determine the eligibility of a potential renter. Needless to say, there are benefits of using credit properly and having a credit profile.

Some other possible perks of using credit include shopping protection. Credit cards offer protection from fraudulent purchases made on your credit card and several cards offer free credit score reporting. If used responsibly, some credit cards offer rewards and/or cash back for your purchases. Individuals who are extremely disciplined and pay their cards in full each month could reap all the benefits that accompany the responsible use of credit.

What happens if I don’t want to use credit?

If you decide you don’t want to use credit, you can still obtain many items that average Americans use debt to purchase. If you want to rent an apartment and need to show payment history to a potential property owner, you can use websites such as eCredible.com to build payment history. Also, providing references could sway the decision of the property owner. If you have a history of paying your utility bills or rent on time, this information could be used in place of credit history.

To purchase a home the process may be a little longer, but if you don’t want to utilize credit it may be worthwhile to you. Some mortgage lenders use manual underwriting to determine your eligibility for a home purchase. If you decide to go this route, most lenders require 20 percent down payment, shorter term loans, consistent employment and income, and history of on-time payments.

So, do you really need credit?

Having credit is not essential to your financial success.

Credit is a tool, and if used wisely can be beneficial for many people who don’t have enough cash to pay for things like a home or automobile. Credit is not an emergency fund and shouldn’t be used to determine one’s financial status.

Financial expert, Dave Ramsey says, “Your credit score is not an indicator of winning financially. All it tells you is whether you are good at borrowing money and paying it back.” Your credit tells others about your payment history and whether you pay back individuals or companies who loan money to you.

So, do you really need credit? If you responsibly pay your bills, have funds in savings, but still lack the funds to finance your goals, credit may be a tool in helping you make progress towards your goals. Likewise, if you lack the ability to pay bills on time, live beyond your means, and lack savings — using credit may be a risky decision. Ultimately, whether you really need credit is up to you. It’s a personal decision that shouldn’t be taken lightly. Only those responsible enough to use credit as a tool should include it in their financial plan.