Do Millennials Use Credit Cards Often?

Do Millennials Use Credit Cards Often?

June 25, 2020         Written By Heaven Speirs

Millennials are now all in the prime age bracket to own a credit card. However, this generation has a reputation for not wanting debt. Often coined the ‘we don’t own’ generation, Millennials have spent the last decade trying to find a balance between borrowing, saving and spending. Do Millennials use credit cards? If so, how does their usage compare to other generations? Let’s explore the current state of Millennials and credit cards.

Credit Card Use on the Rise among Millennials

Studies show that Millennials are gradually using credit cards more. According to Experian, Millennials owned an average of 2.9 credit cards each in 2015. That number increased to 3.2 cards each in 2019. That may seem like a modest boost, but it is stronger than any other generation in the survey. This may simply be due to aging, but there is a noticeable correlation between time and credit adaptiveness among Millennials.

Millennials are also spending more on their credit cards than before. Between 2015 and 2019, the average credit card balance jumped from $3,499 to $4,899. That’s a 39.7% increase in just four years. Baby Boomers only increased their balances by 1.3%, by comparison.

Are Millennials Managing Credit Cards Well?

Millennials are known for avoiding debt, mostly because they were raised during The Recession. Since this generation has approached credit cards with caution, it would make sense that they were managing debt properly. Unfortunately, that has not been the case. In 2019, adults between the ages of 18 and 29 had an 8% delinquency rate for credit cards. That means that 8% of young adults had credit card payments that were 90+ days late. This age group had the highest delinquency rates across all forms of debt, and credit card delinquencies were the highest among the generation.

Delinquency rates across all generations are down despite increased credit card usage. This may indicate that aging Millennials are becoming better with managing credit card debt as they grow older. It also gives hope for the financial future of the generation, despite the hurdles they are overcoming today.

Why Some Millennials Are Hesitant to Use Credit Cards

What made Millennials so fearful of credit cards? Why did they not apply as soon as they reached adulthood? For most Millennials, that shift to adulthood occurred right in the height of economic downturn. The Great Recession occurred between 2007 and 2009, plummeting the economy and trampling nearly every bank and credit card company in America. Millennials watched as their parents, friends and colleagues faced unprecedented struggles, particularly when it came to home loans and credit cards. It took years to overcome those issues and see the ‘good side’ of credit cards once again.

Another factor to keep in mind is that Millennials face stricter credit evaluations than previous generations did at the same age. The Recession caused banks and credit issuers to tighten their lending practices. ‘Good credit’ in the early 2000’s is not the same as ‘good credit’ today. For some Millennials, this may mean waiting longer to get a card they want, even if they are actively prepared to manage it right away.

Will Gen Z Face the Same Credit Challenges?

Millennials have gone through a whirlwind of financial difficulties throughout their adulthood. Will the next generation face the same struggles? For clarification, this is the age range for each generation:

  • Baby Boomers: Born between 1944 and 1964
  • Gen X: Born between 1965 and 1979
  • Millennials (Gen Y): Born between 1980 and 1994
  • Gen Z (Zoomers): Born between 1995 and 2014

It is impossible to predict what the future holds. The COVID-19 outbreak could have a long-lasting impact on America’s economy. With that in mind, Zoomers have already proven themselves to be innovative, open-minded, and persevering. As long as they are given the tools to succeed, they should have no issues tapping into the benefits of credit card ownership.

Note: Some researchers further categorize Millennials into Gen Y.1 and Gen Y.2. This is because Millennials are in the midst of significant life changes at this time – starting a family, buying a home, settling into a career, etc. The Millennials in their 20s are making vastly different decisions than those in their 30s. Thus marketers, product developers, lenders and researchers have split them into two mini-generations. As Millennials age, the need to distinguish between the two groups will subside. Gen Z may then be sub-divided to reflect their lifestyle differences.

Why Millennials Should Want Credit Cards

Credit cards developed a stigma as many Millennials entered adulthood. They became debt traps, rather than useful financial tools and rewards opportunities. It has taken years for the stigma to wear off, but many Millennials are starting to see the upside to having a credit card. Here is why:

  • Credit cards are a gateway for equitable investments. Before getting a home loan, a car loan, a business loan, etc., you need credit. If you want a great interest rate, you need great credit. A well-managed credit card provides access to those important lending opportunities. Millennials have reached an age where they are in need of those loan options and thus in need of credit-building tools.
  • Most credit cards come with rewards. You can earn cash back, airline miles, free hotel nights, and other perks by making the same purchases you already make each day.
  • Credit cards create a trackable paper trail for transactions. This allows you to clearly see what you’re spending and where you are spending it so you can set a manageable monthly budget. It also helps with charge disputes and refunds. A purchase paid in cash is at the business’s discretion to refund. If you make the purchase with your card, your card issuer can act as a secondary support in the matter.
  • Credit cards offer zero liability. If the card is lost or stolen, you are not responsible for fraudulent purchases. If cash is stolen from your wallet, it is gone for good. Having a card puts the risk on someone else, not you.
  • Credit card debt is avoidable with proper payment habits. If you pay off your balance in full each month, you never have to worry about hefty interest charges. You get all the rewards on the card without the fear of lingering debt. Check out the next section for more credit card usage tips.
  • Many businesses require credit cards to make a reservation. This includes hotels, rental car companies, airlines, and more. Not having a credit card may hinder your travel abilities in the future.

Credit Building Tips for Millennials and Gen Z

As Millennials and Gen Z continue to increase their credit card usage, it is important that they learn the right way to use a credit card. Here are some tips to keep in mind:

  • Use your credit card in place of your debit card for daily payments. Then pay your full balance off at the end of the month. You will not be out any money on interest, and you will be able to take advantage of any credit card rewards you have available. This will also establish a good payment history, which is crucial for credit building.
  • Pay more than your minimum monthly payments. Even if you can not pay off your full balance, pay more than the minimum payment. The minimums are mostly interest, which means you are not putting anything toward the principal balance on the card. This will keep you in debt much longer than you need to be.
  • Avoid large purchases until you can successfully repay them, stressfree. Just because you have money available on your credit card doesn’t mean you need to use it all. In fact, having a low credit utilization rate will help you boost your credit score. This is the ratio of debt compared to your available credit.
  • Make your monthly payments on time. If you can only pay the minimum for a month or two, at least make sure the payment comes in on time. This bypasses late fees, keeps your account in good standing, and creates good payment habits for the future.
  • NEVER take out a cash advance on your credit card. This is a recipe for disaster. Cash advances have their own interest rates, which are usually much higher than the average interest rate for a credit card. The cash advance may also come with a special fee, in addition to the ATM fee you pay for the withdrawal. You can use your credit card for emergency funds, but avoid withdrawing cash as much as possible.
  • Be careful when choosing a credit card. Annual fees, interest rates, rewards, introductory offers – there are many factors to evaluate along the way. Compare your options to make sure you find the best credit card for your lifestyle and overall needs.

Millennials have faced more financial challenges than most generations, but they also have more tools at their fingertips. With smart money management and diligent credit building, this generation has the potential to see tremendous growth in their future credit endeavors. For more information about credit building and choosing the right credit card, check out Credit 101 from LowCards.com. 

The information contained within this article was accurate as of June 25, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.