Here's What Happens When You Opt Out of Credit

Credit cards seem to have made such a mess of things that it's pretty tempting sometimes to leave the whole system behind. American credit card debt is hitting unprecedented numbers, and it's not just causing us financial distress but emotional strain as well. That's not even counting other kinds of debt, like student loans.

So, is the right idea just living a cash-only lifestyle? Not so fast, say experts. One reason credit cards are wreaking so much havoc is, in part, that it's very hard to get through life in modern American society without any credit. You need credit, but you also need to stay smart about it.

Earlier this month, NerdWallet columnist Liz Weston wrote about the 7 million older and wealthier consumers who are "credit retired." They've stopped using credit voluntarily, not realizing that this affects their credit score. They're included among the 19 million Americans who are "unscoreable," which means their credit doesn't have enough recent history to generate a score.

Essentially, if you want to apply for work or for things like a new apartment or car loan, banks and other institutions may get cold feet when they see you have no or stale credit history. "While closed accounts in good standing typically remain on credit reports for 10 years, lenders often stop updating those accounts soon after they're closed," Weston writes. The solution, while imperfect, is simple enough: Maintain one credit card and pay off the balance regularly.

Most of us could benefit from taking stock of our credit card collections. Just make sure you buy into the system enough to keep your options open.