Younger consumers prefer debit cards because they have many of the same benefits over hard cash as credit — they eliminate the need for a trip to the ATM and can quickly be replaced if a wallet is stolen. But mostly, young people like debit cards because they dislike debt, says Jeanine Skowronski, a credit card analyst for Bankrate.com.
Already burdened by student loans and burned during the recession, many millennials may be wary of taking on more debt, she says. “They are really worried about getting a credit card, racking up a bill they can’t pay,” Skowronski says.
They may be on to something: 3 percent of millennials admit to having missed a credit card payment, compared to less than 1 percent of consumers overall. More than half of millennials, 55 percent, said they carry over balances from month to month. Doing so can add to interest charges and make it easier for consumers to approach their credit limits, which can ding credit scores.
But being too averse to credit may be a mistake, she says, because having a credit card is one of the easiest ways young consumers can build their credit histories. People who don’t build their scores early on may have a harder time accessing credit later when they need it to buy a car or take out a mortgage. “You need credit to get credit: There’s a catch-22,” Skowronski says.
Beyond financing, people with low credit scores can also have trouble securing an apartment lease, may face higher insurance rates and have a harder time landing a job, she says.
Some young people may not be avoiding credit cards by choice — it became harder for them to access credit after the recession. The Credit Card Accountability Responsibility and Disclosure Act of 2009 restricted the ways companies can offer cards to consumers under 21.
Aside from that, people are growing smarter about how they use credit cards overall. More consumers are paying off their balances in full, and delinquencies are falling.
Young people who are interested in building their credit should consider opening secured credit cards, which require a cash collateral but can still count toward a credit history, Skowronski says. College students may ask their parents to add them on to a card as an authorized user. And once they’ve opened a card, people should pay their balances off in full to minimize interest charges and to keep the balance under control.
“It shouldn’t be a way to buy something you can’t afford,” Skowronski says. “It’s an alternative way to pay for things.”