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CREDIT CARD CONUNDRUM
If you are like most millennials, you have a love-hate relationship with plastic. Perhaps it’s because of having witnessed the devastating effects debt can have on personal finances. Maybe the college loans you’re struggling to repay make you reluctant to accrue more debt. Whatever the reason, you have fewer credit cards and carry lower balances than Gen Xers did at your age.
NO CREDIT CARD? NO CREDIT SCORE
Establishing good credit is the foundation of a strong financial plan. It’s the universal indicator of your ability to handle debt. But according to FICO (Fair Isaac Corporation), the most commonly-used credit scoring company, one in three adults under 30 has no score at all. If your peers do carry plastic, it’s usually a debit or prepaid card. This is especially true of people age 18-24. But studies show that as you get older and more affluent, your use of credit cards rises. 83% of older millennials (age 25-34) use them. And their average balance was almost double that of their younger counterparts. In fact, last year, credit cards outpaced student loans as millennials’ largest source of debt.
CUE THE PERKS
Credit is now – or will soon be – part of your financial life. And to answer that growing need, companies are offering cards with millennial-centric benefits and rewards. These may include $0 annual fees, bonus money after spending a certain amount, points toward free travel, and, in this competitive industry, sometimes you can get all of the above! There’s an Uber card, Amazon Prime card, slews of airline cards. And of course, in deference to your pleasure-loving lifestyle, there are cards for restaurant-lovers, clothes-hounds, car freaks and more. You can compare all the perks at www.thebalance.com/best-credit-cards-for-millennials. Be sure to compare fees and costs, too.
When used carefully, a credit card is a powerful financial tool that can put you in the best light, and save you money. Shopping for a new car? Thinking of buying a condo? Applying for a new job? All of these and more are affected by your credit score. It’s what every lender checks first, to see how well you have handled repaying debts in the past. Opening a credit card, and using it responsibly, is one of the best ways to establish and build your credit-worthiness. A high credit score will earn you better interest rates on loans. A low credit score is a red flag that costs you more, and may even have you turned away from a car lease, job or apartment rental.
Using a debit card will not help you build a credit history. Neither will a prepaid card. Or cash. Credit cards also offer better protection against theft. You’re only responsible for $50 of fraudulent charges, whereas debit card crime can cost you up to $500.
Until recently, college kids simply had to walk around campus, and be instantly approved for credit cards (plus get free t-shirts for doing it.) That kind of marketing is now illegal, so millennials are limited in ways to get access to credit. If you’re just starting your career, or have little or no credit history, getting approved can be challenging. Here are some steps to take:
BUILD A BETTER CREDIT SCORE
Bad credit costs you big time. For example, on a $20,000 car loan, someone with a low credit score could ultimately pay over $5,000 more in interest than someone with a high score. Large loans like home mortgages can incur extra interest costs in the five figures.
Here are some ways to boost your credit profile: