Millennials have more than a few misconceptions about credit cards, according to several recent studies.
More than six in 10 (63 percent) adults aged 18 to 29 don’t have a credit card, as discovered by a survey conducted for Bankrate.com. Saddled with ballooning student loan debt and with the shock of the recession still fresh in their minds, many are wary of plastic payment methods and conscious of their potential inability to pay off what they owe each month.
In fact, Bankrate’s survey found that of the Millennials that do have credit cards, only 40 percent pay off their balances in full each cycle, compared with 53 percent of adults aged 30 and over. Furthermore, 3 percent admit to missing payments altogether—more than any other age group.
“Millennials may think they’re staying out of financial trouble by forgoing credit cards, but they’re actually doing a disservice to themselves and their credit scores,” said Jeanine Skowronski, Bankrate’s credit card analyst. “The responsible use of credit cards is one of the easiest ways to build a strong credit score, which is essential for qualifying for insurance policies, auto and mortgage loans and sometimes even a job.”
But while Millennials are the least likely age group to own a credit card themselves, a further study found that they also felt most strongly about getting one early in life.
Fifty-eight percent of 18- to 29-year-old respondents in a CreditCards.com poll said the first should come by 20; just 23 percent of those aged 50 and over agreed.
A reason for that could be because the 2009 CARD Act made it much more difficult for the under-21 set to qualify for one. Current requirements include having a verifiable source of income or an adult co-signer on the account—meaning the co-signer would be legally responsible for paying debts if the borrower doesn’t.
Millennials are making mistakes
When Millennials do apply for credit cards, however, they’re not going for the right ones.
According to a survey of 2,084 American adults conducted for online credit-card comparison tool NerdWallet, the age bracket is applying for the wrong cards—usually because of an advertisement or promotion—and getting rejected, which also hurts credit scores. In fact, they have the lowest average credit score (28.1 percent have scores below 579) and the shortest credit history of all age groups and that may not improve.
“Applying for the wrong cards can be just as damaging as not applying for cards at all, so don’t rely solely on advertisements or peer recommendations,” the report cautioned. “As consumers apply for the wrong cards and are rejected, they’ll continue collecting hard inquiries, which will ultimately negatively affect their credit scores and in turn hurt their chances of being approved for a card.”
Sean McQuay, a credit cards associate at NerdWallet, explained, “Especially for younger consumers and anyone trying to build their credit, avoid applying for credit cards too often—a good rule of thumb is to wait six months to a year between card applications.”