What Millennials Need to Know About Credit

Millennials are a generation with a reputation for their cultural and technological knowledge.  Unfortunately, many young people are more wary of credit cards than older generations.  They either misunderstand or are unaware of the benefits of using credit cards wisely. And when it comes to being savvy about credit cards, they could learn much from their parents.

Making History

Their fondness for forgoing credit cards has given millennials a truly dubious honor: the lowest credit scores among all generations.

Breaking Bad Habits

More and more millennials are forgoing credit cards in order to avoid perceived pitfalls.  But skipping out on credit cards adversely affects one’s credit history because it leads to “thin file.” Having a dearth of credit history can pose a problem generating a credit score.  This may also give future lenders pause when considering loans. Having a strong credit history gives lenders confidence that you are a lower risk.  When buying a home, credit history plays an important role.  But even though home-ownership seems far off for most young people, poor credit can prove problematic when applying for a credit card or obtaining a lease.

Credit Verdict

For millennials, it’s important to obtain a credit card even if it’s only for a few bills. Young people that put off getting a credit card until later in life will find how much more difficult their financial lives will become.  Millennials need to develop a credit history and the easiest way is through good credit card habits.

Are you a millennial thinking of obtaining a credit card? We’d love to hear from you in the comments below.

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  1. 1

    Is there a good reason why we millennials must change and not the way credit scores are calculated? I have a couple of small credit cards that I use regularly (I could only get very small credit limits when I was first applying). One of my banks (not Ally) offered me a card with a much higher limit which I refused because (a) I don’t need it and (b) they refused to give me a credit card the first 3 times I applied for one from them. Also, I was utterly disgusted with credit scoring recently when I paid off my car (all of my payments on time and paid off over a year ahead of time) and my score went down because it means I have one less line of credit. It just seems to make no sense to punish people who are doing things right (i.e., only purchasing things they can afford when they can afford them).

  2. 2

    Totally Agree with Katy. We are weary of credit because we’ve seen the damage that lending habits and bad spending habits can cause. Lenders love credit because that’s how they make money and thus have oriented the industry. While credit ratings tend to be the benchmark now for lending practices, hopefully in the future some financial institutions will adjust according to the needs of the consumer not the lender………. in my opinion. I’m hopeful that there will be new and emerging forms of banking practices.

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