Could You Live Without Your Credit Card?

by Kristina on December 15, 2010 · 8 comments

eiffel towerAs a financial planner for a leading international financial institution, I am learning about the financial systems in other countries.

France doesn’t have a credit system.  The credit system doesn’t exist in France. If you had to, could you live without your credit card?

Some of us charge everything to our credit cards all month long to earn travel or reward points. Then we pay off the bill in full at the end of the month to avoid any interest charges. If you didn’t need to and you didn’t earn any points, would you still use your credit cards for daily purchases? We may not use our credit cards out of necessity; we may only use them out of convenience.

However, some of us couldn’t survive without credit. In an idealistic world we would never use credit as a form of payment, because we should never spend money that we don’t have. That’s exactly how it works in France. French people do not spend money that they don’t have.

Financial institutions do have VISA and MasterCard in France; however it is linked to guaranteed money from their client’s bank account.  I very often have newly immigrated clients call me when they get their first credit card bill because they don’t understand why there is a balance owing on their credit card.  I have to explain to them that their spending is not automatically debited from their bank account each month.  However, clients do always have the option to set up a pre authorized payment plan.

France does offer regular loans to their clients, but they do not have revolving credit. There are home loans, fixed rate loans, and variable rate loans; they are a lump sum of money that is repaid over time, and very often the loan is secured by an asset.  Revolving credit such as credit cards, overdraft protection, and lines of credit do not exist in France.

Although the “Credit Cards” in France work almost the exact opposite as our system here in North America, there are some similarities.  “Credit Cards” in France have a limit just as our credit cards do in North America.  However, the difference is that the limit in France is a spending limit, and the limit in North America is a credit limit.  This means that the client has a maximum of $1000 they can spend each month; and at the end of every month the $1000 is debited from the client’s bank account. There is no carrying a balance from month to month, because the money is not borrowed.  People in France spend as much on their credit cards as they wish to pay, whereas in North America we charge as much as our credit limit.

In North America, our Credit Card limit is based (among other things) on our credit history and our employment.  In France, the spending limit is based on client’s assets.

If you lived in France could you live without your credit card?

Photo By Eustaquio

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