Credit card usage is dropping among the millennial generation. A surprising 67% of Americans between 18 and 29 years of age have no credit cards at all, according to a recent survey. That compares to only 45% of Americans between the ages of 30 and 49, and 38% of those aged 50-64 without credit cards. At 32%, even less Americans aged 65 and over are without a credit card.
The 2009 Credit Card Accountability Responsibility and Disclosure (CARD) Act probably played some part in the decrease by making credit cards difficult to obtain for those under age 21. Whopping levels of student debt also play a role, as millennials are wisely afraid to add more debt to their loan obligations.
Unemployment may be keeping some millennials from qualifying for credit, but others appear to be avoiding credit cards as a matter of principle.
Given America's soaring credit card debt, that is a positive development… or is it? Consider some of the potential advantages of credit card use.
- Building Credit History – Without a credit history, lenders have no way to evaluate your risk when the time comes to buy a car, a home, or any other large purchase requiring a loan. You will be charged higher interest rates, as a result, until you prove your risk level is low.
- Purchase Protection – As opposed to cash purchases, credit cards offer protection against vendor fraud and stolen items. You also have means for disputing fraudulent purchases made in your name.
- Convenience – Credit cards are convenient and accepted at most vendors, whether brick and mortar or online. (Arguably, this is a negative if you have poor self-control.)
- Record of Expenses – Monthly credit card summaries provide you with a full record of your credit purchases. If you do not keep receipts or budget properly, these records are quite helpful to outline where your money is going.
- Emergency Reserve – Your credit limit serves as an emergency pool of funds for unexpected expenses such as an auto breakdown or an accident requiring medical care.
Credit.com suggests that the average person without credit cards could pay almost $160,000 in extra interest over a lifetime when compared to the interest rates acquired through responsible credit card use. While there are many assumptions involved in that figure, the principle is sound.
However, many millennials are putting more emphasis on the negative side of credit cards, such as these examples.
- Fraud/Identity Theft – Credit card breaches cause many headaches in disputing fraudulent charges and repairing the damage from lost personal information. Debit cards are less tempting as they are limited to the cash in your account, and your credit limit is probably higher than your bank account balance.
- Debt/Interest Rate – Credit card debt is usually the highest interest rate debt you will incur and if you charge more than you can pay off each month, debt can spiral to unmanageable levels. If you want more credit, check out CreditCards.org's list of low-interest credit card offers.
- Ease of Overspending – The flipside of the convenience advantages listed above.
- Poor Credit Scores – Just as you can build your credit history with responsible credit card use, you can damage it with irresponsible use. Having no credit history makes it difficult to qualify for loans and mortgages, but having a poor credit history increases those difficulties. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
The most responsible path is to use cards sparingly, pay them off in full each month, and stay at a small fraction of your credit limit (10% or less if possible). This strategy will give you the best credit rating without increasing your debt.
Avoiding credit cards is advisable if you cannot use them responsibly. However, it is better to learn how to use cards sparingly and intelligently.
The same properties that can cause you to run up credit card debt (such as lack of self-control, poor budgeting and overspending) are going to cause problems in other areas of life eventually. Once you get those habits under control, you may not feel the need to avoid credit cards.