The youngest generation of adults known as millennials has earned a reputation for bucking trends in politics and culture. They might also be changing the narrative on credit cards, which have long been the preferred payment method of Americans. According to a 2016 survey, two-thirds of adults age 18 to 29 years old said they did not currently have a credit card. For comparison, in the next age group, those from 30 to 49, less than half said they didn't carry a card.
It's difficult to know exactly why younger adults might be shunning credit for now, but it's not an unreasonable trend considering the dangers of overspending and falling into debt. With that in mind, here are a few options for choosing a great first-time credit card and how using it responsibly could actually save money over time.
First, it's important to know the very basics of how credit cards work, since there are several misconceptions surrounding these financial tools. When you pay for something with credit, that amount is not deducted from your bank account instantly, as with a debit card. However, that spending is added to a statement that must be paid off each month. This is helpful for some because it allows them to buy the things they need without worrying about causing an overdraft on their checking account.
Once you receive your statement with charges for the month, you should have a window of time to pay them off without any additional cost. This is called a grace period, and is usually less than a full month after the statement is created but often at least a couple of weeks. There is often a minimum payment that can be made instead of the full balance, but any amount left over at the end of the grace period will begin earning interest - this is how credit card debt tends to pile up.
If you pay off the full balance due within the grace period, you will have just become a responsible credit user without having spent any additional money. But if your card includes a rewards program, as most do, you won't just be breaking even every month you avoid interest payments. With cash back incentives or flight points, it's possible to actually earn a little additional money or save on big purchases, all because you used your card and paid it off on time. Try to plan out how you use your rewards points to make them count.
The real long-term benefit of responsible credit use is how it contributes to your credit score and history. When people look to take out a loan for a home or car, the lender will use a credit scoring model to understand how much debt you can probably afford, and how much of a risk you present to their business.
The thing about credit scores and credit history is that you need to have been given credit before to have any report at all. That's why using a credit card responsibly is a great way to build credit over time. After just a few years of on-time payments, credit card users will see their scores rise, and should have an easier time getting a great deal on a loan for a car, a new home or anything else.
If you need help deciding on your first card, it's a good idea to start local. Speak with a representative at Landmark and have them help you find the best credit card for your needs.
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