Millennials and credit cards don't mix. Survey after survey shows that fewer of these individuals have credit cards than any other age group. Some of this can be explained away by the introduction of legislation after the last financial crisis. The CARD Act of 2009 made it more difficult for those between 18 and 21 to get credit cards. However, some of the low credit card numbers are also due to a negative mindset this group has about the product.
Part of the aversion to credit cards is justifiable. If they are mismanaged and handled poorly, credit cards can lead to financial ruin. Credit card debt among balance carrying households is at an all time high. However, completely ignoring credit cards can also lead to potential problems. The answer is to not hide from credit cards, but instead to learn how to wield them like a tool. If one can achieve this, a credit card can have a net positive impact on your financial standing.
Credit cards are one of the first ways you'll establish a credit history. While this may not seem like a high priority right now, it's something you might appreciate later in life. When you decide to finally buy a home or apply for an auto loan, you'll be thankful to have a long credit history. Opening up a credit card account is one of the easiest ways to begin this process. There are plenty of credit cards tailored towards individuals with no credit score, and even students. While other types of loans may be difficult to qualify for young millennials, credit cards present an easy access point. Our studies show roughly 38 percent of millennials have a poor credit score -- that is one below 620. In contrast, roughly 16 percent of baby boomers fall into the same credit category. It's not enough to open up a credit card account, but also to use it responsibly. Pay your bills on time, and don't use more than 30 percent of your total available credit limit. As long as you stick to these general rules, your score will grow over time.
Credit card rewards can help those living on a tight budget. A study by Bank of America showed that those under 25 have the lowest monthly budget, driven largely by low income and being stuck paying down student loans. Most of America's largest credit card issuers offer a number of different reward credit card offers. Our research finds that you can, at the very least, get between 1.5 percent and 2 percent back on each purchase. Given the millennial budget reported by Bank of America, this can translate to an annual savings of over $600. If you play your cards right, you can greatly increase this by taking advantage of special welcome offers. If you decide to go down this road, be aware that reward credit cards tend to be tailored towards specific budgets. Some are more rewarding for those who spend big on groceries and gas, while others are intended for those who dine out and travel a lot. Playing with the different combinations can quickly turn into a math assignment. You can, however, take advantage of online comparison tools to shortcut this step. Once you get matched with several cards, take the time to consider what kind of reward currency they deal. For example, just because a Hilton Hotel credit card provides the highest rewards, doesn't mean you should apply. Consider whether or not you are actually likely to use the points. If not, your actually value for that particular card will be zero.
Small print isn't as small as it used to be. Having grown up in the middle of the Great Recession, many millennials avoid credit cards for the same reason they avoid traditional banking -- a lack of trust in the institutions. It's easy to see why an individual might avoid a credit card, if they expect to be surprised by hidden charges.
However, this is no longer the case for most credit cards. Regulations, first introduced by the Dodd-Frank Act, have greatly improved fee and cardmember agreement disclosures. If you want to know how much your credit card will cost you, it's entirely possible to do so by going online. The Consumer Financial Protection Bureau maintains an
that let's you browse through hundreds of credit card agreements, most of which follow the same formatting. This allows people to quickly and easily read through multiple contracts, while also jumping to sections they care about most.
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