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3 reasons for Millennials to use credit cards

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By Andrew Housser

As you read the headline of this article, you may do a double take. Wait, you might ask – Is a consumer finance and debt
relief professional encouraging millennials to use credit cards? There actually is a method to this seemingly contrarian
position.

Many surveys have found that millennials comprise the generation with the smallest percentage of credit card users. A
recent Bankrate survey found that 67 percent of millennials do not even have a credit card. With other generations, the
numbers are reversed. Among Gen X, 55 percent do use credit cards, and 62 percent of Baby Boomers use them.

Avoiding debt is indeed a good practice, in general. But some debt can be considered healthy debt. That could include a
mortgage to buy a home, debt to fund further education, a loan for a needed vehicle, or perhaps debt to fund an emerging
business. A study by TransUnion, the credit bureau, found that 43 percent of millennials have subprime credit. That
means these individuals are less likely to be offered a loan to buy a home or a car – the kind of purchases that loom in the
near future for many in the millennial age group of 18-34. For these individuals, using credit cards actually can be a way
to build a stronger credit profile.

With these things in mind, here are three reasons millennials might want to consider using credit.

1. Millennials already are using credit. Some people argue that the idea that millennials do not use credit cards is a
myth. In fact, a FICO study conducted earlier this year found that when the millennial generation is broken out by
age, 83 percent of 25-to- 34-year- olds do use credit cards. In contrast, very few 18-to- 24-year- old millennials have
credit cards. This is not unexpected, however, considering that credit card laws make it very difficult for anyone under
21 to obtain their own credit card. Those who already have credit cards can do several things to keep their credit
profiles strong: pay on time, and pay down balances rather than carrying them over month to month. By paying off
balances, you can free up available credit, which is an important part of the credit scoring process.

2. Millennials already are in debt. A study this year found that the average millennial college graduate owes more than
$41,000 in student loan debt. Most of these graduates pay some $350 a month on their loans. The problem is that
when lenders examine credit profiles and see thousands of dollars in student loan debt – and no other available credit
– they may be unlikely to extend credit for a vehicle or home purchase. In this case, having a credit card that you use
for small purchases that you can pay off in full, on time, every month, can show lenders that you can manage debt.

3. Millennials use debit cards. Recent studies find that millennials are frequent users of debit cards. This can be
positive, as debit cards use money that you already have in your bank account, instead of accumulating debt.
However, debit cards are not the best choice in some cases. They do not help build a credit history. Using debit cards
online can create a security risk, too, because they do not have the same protections as credit cards if account
information is stolen.

Credit cards, vs. debit cards, are sometimes needed to hold travel- and transportation-related reservations. Another
downside of debit is that some gas stations and hotels place holds on debit cards, which can tie up money. For
instance, a gas station may place a $100 hold on your debit card until your purchase of $30 of gas clears. During that
time, $70 in your debit account is unavailable for other purchases. Credit card holds, on the other hand, do not
compromise checking account funds. Even if a merchant places a hold on a credit card, it generally is reversed as soon
as the charge goes through.

It is important to remember that credit is a tool. Credit is the way banks and other lenders examine your spending history
and check whether you will be a good risk for a loan, such as a home mortgage. Using credit wisely does not mean having
to go deep into debt. Rather, it means using a tool to help you accomplish your goals in life – and paying your way as you
go.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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