Many Millennials are making careful lifestyle choices like living with roommates and taking side gigs to supplement income from their day jobs. Many delay major purchases like cars or homes. Some even avoid credit cards, sticking with debit cards instead to avoid accumulating credit card debt. According to Forbes, “the percentage of Americans under 35 who hold credit card debt has fallen to its lowest level since 1989.”
Still, too many of the Millennials who do carry credit cards don’t know how the credit cards work – and that can lead them to costly mistakes. According to the Millennials & Credit Cards Survey, by LendEDU:
- “Millennials’ knowledge of credit cards is lacking” and “very concerning.”
- 6% of Millennials believe that missing a card payment would “improve” their credit rating.
- 17% said missing a card payment would have no effect on their score.
- 36% have maxed out credit cards.
- 48% carry card balances on which they pay hefty interest charges from month to month.
- 45% didn’t know their credit-card interest rate.
- About 25% carry three or more cards.
My advice to Millennials about credit cards:
- Do not get a credit card while you’re in college. Wait until you graduate and have job that lets you to pay off your credit cards in full every month.
- Want to build good credit while in college? Become an authorized signer on your parent’s credit card instead of getting your own. You’ll still build your good credit history without being primarily liable for the credit card debt.
- When you do open a credit card, understand the terms. Know your credit limit, interest rate, and pay attention to the fine print about what happens when you miss a payment. (Hint: It doesn’t improve your credit rating, and your interest rate will probably go up.)
- Plan to pay off your credit card in full every month. If you find that you can’t do this, then by definition you are living beyond your means. Time to make some adjustments to your spending.
- Credit card companies market particularly aggressively to Millennials. Be thoughtful about which offers you accept. Again, read the fine print. Also, you probably don’t need more than one or two credit cards. The fewer cards you have, the more carefully you will be able to manage your account(s).