This post is from our regular contributor, Erin.
There are many recent reports citing that millennials are scared to get a credit card.
This is both interesting and a bit disconcerting.
I know there are quite a few people out there who elect not to have a credit card because they don’t trust themselves to spend responsibly.
That’s one thing, but this seems to be slightly different. It’s clear that millennials are concerned about their financial situation – being burdened by student loans and not having many job opportunities isn’t a fun place to be.
That doesn’t mean they should be completely avoiding credit, though. As long as it’s used responsibly, there’s no reason not to get a credit card.
I think it’s important to review what factors people need to consider before getting a credit card, so that’s what we’re going to do here. Knowledge is power, right?
Educate Yourself on How to Use a Credit Card
I should start this off by saying I was 18 when I signed up for my first credit card. My mom encouraged it so I could start building credit.
I grew up watching my parents struggle with credit card debt, so this might be a little surprising.
However, I was dead set against going into debt from that experience, so I used my credit card responsibly from the get go.
The best advice I can give is to simply use your credit card like your debit card.
Don’t pay attention to your credit limit. Only pay attention to what’s in your bank account, and what you can afford. Pay your bill in full, every month.
Never ever view your credit card as a ticket to affording things you otherwise can’t. That’s what will get you into debt.
Knowing how to use your credit card responsibly is half the battle. The other half is managing your money and your spending habits.
What Are Your Spending Habits?
You need to know yourself to answer this question honestly.
As I mentioned in the beginning, some people know better than to go near credit. They can’t trust themselves because they know they’ll spend recklessly.
Carefully evaluate your spending habits and consider whether or not you can trust yourself with a credit card.
Are you tempted to buy things easily, or do you research purchases thoroughly?
Are you a sucker for impulse gratification, or are you a pro at delayed gratification?
From an early age I was an absolute pro at delayed gratification. Too much of one, honestly – I’d spend an hour in a store, driving my mom crazy, contemplating whether or not to buy something.
At 17, I had been working at a part-time job, diligently stashing away whatever I could, even before I had a credit card.
I never questioned whether or not I could handle credit. I wasn’t tempted to spend the money I had earned, and I’ve never been tempted to spend the money I didn’t have.
If you’re already financially responsible and know what your spending limits are, then opening up a credit card might not be a bad idea.
If you get distracted by sparkly things you want to spend all your money on, or if you’re living paycheck to paycheck, I would recommend not getting a credit card.
You have to remember that credit cards are not a free pass to live the life you previously couldn’t afford. Credit cards are also not an excuse to inflate your lifestyle. They shouldn’t change anything except for how you pay for something (that something being an expense you can afford, of course).
Your Credit History
Have you built up any sort of credit history thus far?
Check your credit score and see what’s going on there. It’s important to know, regardless of whether or not you choose to open a credit card.
If your file is thin (there’s not enough history there), then you could benefit from building your credit by opening a card.
Why focus on your credit score? There are a few arguments going on as to whether or not it still matters, but for young adults, I think it does. Especially if you don’t have a score!
For example, if you go to rent an apartment, landlord’s will typically conduct a credit check on you along with a background check.
Some jobs require credit checks.
Applying for a loan for a car, or a mortgage? Your credit still counts.
Like I said, I opened my first card at 18 to get my credit history established. I still have that account, because 15% of your credit score is derived from your credit history.
It’s important to get started at some point!
Rewards and Incentives
If you’re thinking about getting a credit card, you should make sure you get one that offers rewards. This way, you’re getting the most out of it when you do use it.
I didn’t understand the big deal about reward points before I started blogging. I wasn’t interested in putting every charge on my card – I actually used cash quite often.
Then I realized how awesome it was to pay for things I needed and get cash back for it. It’s basically free money, as long as you use your card responsibly!
However, don’t fall for the mindset of buying something just for the sake of getting points.
Again, your spending habits should stay in check. Get a rewards card that specifically gives you cash back for spending on things like gas or groceries. This might cut back on your temptation to charge everything for points.
If you’re a travel junkie, earning miles through credit card spending is fairly easy to do, too. You can essentially earn yourself a free trip somewhere just by spending responsibly.
Bottom Line
Millennials shouldn’t be scared to get a credit card just because they’re afraid of debt. As long as they use credit cards correctly, there’s nothing to be worried about.
There’s a similar argument to be made about the stock market, too. Due to the recession, millennials aren’t keen on investing their money.
We can’t keep holding ourselves back because of what happened in the past. Remember, you’re largely in control of your financial situation. Educating yourself and being responsible goes a long way toward arming yourself against another recession.
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Credit cards aren’t evil as long as they’re used correctly. Evaluate your spending habits, your credit history, and how you might be able to use rewards. Educate yourself on how to be a responsible consumer, and treat your credit card as a debit card. Follow these basic tips and stay out of debt!
How long did you wait before signing up for a credit card? Do you have one? Why or why not?
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I actually got a credit card when I was 16 (thanks Mom and Dad!). My parents taught me how to use it responsibly and engrained in me that I should treat a credit card just as I would cash, and not spend money on anything that I didn’t already have in my back account to be able to pay for.
As a result, I’ve always paid off my credit card bill in full each month and have been able to build up my credit and have a really great credit score. I think that if you use it responsibly, there is no reason to be afraid of having a credit card :) A lot of good can come from it, actually. I was able to buy my first home at 22 at a very low interest rate because of the credit history I had been building up since I was 16!
Christina@EmbracingSimple I actually had a very similar experience as my parents gave me a credit card at 16 to pay for gas to put in the car I shared with my sister. It ended up being a huge benefit later on because, like you, I ended up with a really high credit score at a relatively young age.
I’ll admit, I was scared to get a credit card at first a lot of people encouraged me not to. Deep down though, I knew I needed one in order to build my credit history early on so I researched everything about credit cards and how to use them and I opened my first account at 20. It was still a young age, but I wish I would have got one sooner but I’m thankful that I took the time to educate myself beforehand.
I signed up for a credit card when I got to college. In my mind, a credit card was just like cash though I know that is not the mindset for everyone. I use it with the intention of paying it in full each month and if I don’t have the money, I’m not swiping the card.
DC @ Young Adult Money I feel like we’ve had this convo before, or maybe I’m really going off the deep end and having a dejavu moment. I think it’s great that your parents had the same mentality. I have plans to give my kids a credit card at 16 too and show them how it can be an effective tool if used appropriately.
Don’t do it unless you can control yourself to only use it for true emergencies or pay it off in full every month. If you can do that, then go for the best rewards program!
Christina@EmbracingSimple That’s awesome, and I’m glad a few of us have had similar experiences. Modeling the right financial behavior for your children can go a long way toward them being financially successful! I’m glad I opened a credit card when I was 18; my fiance still doesn’t have one (except for a store card) and there’s no reason why.
Chonce I think it’s fantastic you researched everything beforehand! I wish more people would do that. =) It’s definitely important to know what you’re getting into when taking on any potential debt.
Andrew LivingRichCheaply That’s exactly how I see it, too. I’m not sure if it was something my parents told me, or if I just knew it intuitively after seeing them struggle with credit card debt. Either way, I’m grateful.
SimplySave Agreed. I actually wish I had applied for rewards cards sooner! I thought it was too much of a hassle to apply for another card when I already had one. Glad I learned otherwise!
Christina@EmbracingSimple DC @ Young Adult Money Haha we very well could have! It’s Friday so hopefully you’ll give me a pass ;)