Why Aren't Millennials Using Credit Cards?


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Written by: Contributor | Best Company Editorial Team

Last Updated: April 13th, 2020

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In the wake of a recovering economy and increased bank lending standards, fewer and fewer people are applying for and using credit cards, making the switch to debit cards or cash as their preferred method of payment. According to a 2014 Gallup poll, 29% of the US population doesn't own a credit card-that's just over 92 million people. Of those 92 million that are living a credit card-free life, 63% are millennials (the age group between 18 and 35). In short, millennials are the main contributing demographic to the nation's decreased use of credit cards, which leaves us with two questions:

  1. Why aren't millennials applying for and using credit cards?
  2. Is the shift away from credit cards necessarily a good thing?

To be sure, the credit card industry has developed a rather unsavory reputation with regard to its marketing practices towards millennials-specifically recent high school and college graduates. Historically, young adults with little experience or understanding of how credit cards work have viewed credit cards as a source of "free money"; they didn't fully realize the consequences associated with racking up debt and being late on payments.

But now, there is a clear shift in millennial mentality towards credit cards, and we here at BestCompany.com wanted to know why. So, we conducted a survey among 1,000 participants ages 18 to 35, and asked them what most prevented them from using or owning a credit cards. The results are as follows:

#6: I had a bad experience with a credit card.

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Coming in at 5.8% is "I had a bad experience with a credit card." The relatively low response total in this category engenders two possible hypotheses:

  1. Few millennials have bad experiences with credit cards (meaning, most millennials have good experiences with credit cards).
  2. Few millennials have any experience with credit cards.

To be honest, number two is probably the most likely. The fact of the matter is, the main reason few millennial report having a bad experience with a credit card is because they've never owned one. And according to some reports, a significant portion of these millennials haven't needed credit cards. Earlier this year, the Pew Research Center announced that approximately 33% of millennials were still living at home with their parents; in other words, a third of millennials haven't needed credit cards because important living expenses such as rent, food, and even transportation were being covered by their parents.

#5: My parents warned me against them.

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And speaking of parents, only 6% of millennials reported "my parents warned me against them" as the main reason why they don't use or own credit cards. This low number is interesting, especially when you consider that American consumers owe $918.5 billion in credit card debt-with the bulk of that debt clearly on non-millennials (people ages 36 and up). This stat has a couple of implications itself:

  1. Either parents aren't warning their kids about the risks and implications of credit card use or
  2. Parents are warning their kids, but this warning has relatively low impact when compared with other factors.

Thankfully, it's not the first implication. According to a 2012 survey by DoughMain, 81% of parents agree that it is their duty to teach their kids about money and saving, and 43% of parents review bank statements with the kids each month. So, maybe parents aren't necessarily warning their kids against credit cards as much as teaching them to be financially literate so that they can make decisions regarding credit cards for themselves. In either case, there has never been a better time to learn about credit cards, and as millennials tend to Google everything in site, parental warnings may simply as a supplemental education.

#4: I don't qualify for one.

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Over 13% of respondents reported "I don't qualify for one" as to why they don't use or own a credit card. In other words, they want a credit card, have taken the time to apply for one, but were denied for one reason or another. According to CreditKarma.com, there are number of factors that can affect whether a person qualifies for a credit card-some of them beyond a young adult's control. For example, one catch-22 associated with credit card approval is how often you use a credit card to begin with, i.e., if you don't use credit cards often, you'll be less likely to qualify for one. Additionally, credit card companies like to see long credit histories before they are comfortable giving out another credit card, something else that most young adults simply don't have.

Credit card issuers use credit histories as a way to determine whether a potential borrower will be reliable in making return payments on credit card debt. Consequently, if you don't have a credit history, lenders have no way of knowing this; however, there are some credit cards available for individuals with limited or no credit history, such as a student credit card. These cards allow users to build up their credit and eventually qualify for other credit cards later on.

Still, in spite of these other options, the measly 13.1% of millennials who reported this as the main reason means that nearly 90% of millennials aren't even seeking credit cards in the first place.

#3: I'm afraid of debt.

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Next at 17.3% is the group of respondents identified "I'm afraid of debt" as the cause to their credit card apprehension. This is perhaps the main drawback to credit cards in the eyes of millennials. Simply put: you cannot use a credit card without going into debt.  Of course, the amount of debt incurred greatly depends on each person's unique circumstances. Millennials are growing up in the aftermath of the great recession, the product of uncontrolled debt and risky investments; so naturally, they would be hesitant to repeat that process in their own lives.

This fear highlights a deeper issue, mainly that nearly a fifth of millennials either don't trust the economic environment around them-an environment where it's hard to get a job and student debt is had historically high rates-or they don't trust their own spending habits; the temptation to spend more than they make is too great for some young adults.

But debt isn't necessarily a bad thing, and often times, young adults may need to incur a little debt for education, a home, or transportation. Where the fear comes in is the lack of education many millennials suffer from when it comes to getting out of debt (you can listen to our podcast episodes on student debt and personal finance for more information). the more millennials can educate themselves on credit cards, the less afraid they'll be of debt, and the more they'll actually be able to do financially in the long run.

#2: I prefer using a debit card or cash.

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At 26.2% the second most popular reason for avoid credit cards is "I prefer using a debit card or cash." More specifically, many millennials are turning away from credit cards to prepaid debit cards. According to a survey from the Federal Reserve, millennials account for 45% of prepaid debit card usage. Some experts believe that millennials prefer this route because it allows them to better track their spending without the fear of overage charges. These cards have the immediacy of a credit card without any of the negative interest or transaction fees. Cash too provides a tangible way for young adults to keep track of where their money is going.

#1: I don't want one.

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Finally, the number one reason why millennials aren't using credit cards is this: "I don't want one." This response accounts for over 30% of millennials surveyed. Plain and simple, most millennials are not driven by fear, not limited by qualification; it's just a matter of preference. Millennials today see little value in owning and using a credit card; they only notice the debt, and the other disadvantages associated with this form of purchase.

Why Millennials Should Reconsider Their Position

That being said, credit card abstinence may not necessarily be the best route in the long-term. While avoiding credit cards is one surefire way to avoid debt, it's also a surefire way to avoid building good credit, which is crucial to applying for a mortgage, a car loan, or any other type of loan. Good credit also has the potential to land you in a promising, long-term relationship (check out our post on 5 Ways Applying for a Business Loan Is like Dating for more information on that). And while owning a credit card is not the only way a person can build credit, it's certainly one of the easiest. According to myFICO.com, there are five main factors that contribute to your credit score:

  • 30% is attributed to the amounts you currently owe.
  • 35% is attributed to your payment history
  • 10% is attributed to your credit mix (the types of credit lines under your name)
  • 15% is attributed to the length of your credit history
  • and 10% is attributed to any new credit under your name

If you want good credit, chances are you'll need to apply for a credit card; and if you employ some of the following tips, you can start making your credit cards work for you over time:

1. Make Sure You Get the Right Credit Card for You

There are a lot of different credit cards out there, all at different interest rates, with different rewards systems, and different minimum requirements. When choosing the right credit card, it's important to do your research. Check out our reviews on the best credit card companies on the market, and make an informed decision.

2. Don't Apply for Too Many Credit Cards

While having several lines of credit is important in establishing good credit, be careful not to apply to for too many cards. Often, you'll only need one to three to show a good credit mix. And remember, some credit cards will charge annual fees even if you don't use them, so make sure you have a way to keep track of everything.

3. Use Credit Cards for Small Purchases

Credit cards are ideal for small purchases, and some credit card companies will reward you double points for purchases at restaurants or gas stations. These rewards can accumulate and you can use them later on for travel or gifts.

4. Pay Off Your Balance Each Month

Nothing could be more damaging to your credit than missing payments or paying your monthly balance. Not only does it accrue more interest over time, but it also indicates to other lenders that you are not so reliable as a borrower. Paying off your balance each month will keep you in the green and looking good to lenders.

5. When Possible, Avoid Big Purchases

Sometimes, it is necessary to place a large purchase on a credit card (such as in the case of emergency); however, when possible, avoid doing so. Large purchases can take a long time to pay off, during which time interest and other fees can be added on to your principle amount, extending the time it takes to pay everything off.

What many millennials are forgetting is that the credit card industry is very different now than it was when they were kids. Credit card companies are now much more transparent about their terms and conditions, and offer several incentives that can actually curb the perceived disadvantages that credit cards are often known for. In addition to rewards programs (air miles, cash back, etc.), some cards will not charge interest on transactions for over a year. Shop around, be responsible, and make your credit cards work for you!

The Top Credit Cards Companies

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#1 Capital One chevron_right
9.4 Overall Score
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#2 American Express (Amex) chevron_right
9.2 Overall Score
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#3 Discover chevron_right
8.8 Overall Score

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