Best credit tips for millennials

By Benjamin Salisbury


Millennials' credit card use differs from that of older generations in a few ways. The main difference: young adults in their mid-20s to mid-30s may not be using credit at all, and if they are, they aren't using cards with the best deals and perks.

The reason is three-fold:

Firstly, millennials haven't had as long to build up a good credit profile to be able to qualify for premium credit cards.

Secondly, many haven't settled into a permanent career yet - whether that is because they are still trying to find their long-term path, or because they are part of the gig economy - and so have not had a regular or high enough income to qualify for a card.

Finally, a large proportion of millennials are wary of taking on debt. As a result, they may see credit cards as a direct path to debt - and avoid credit altogether.

However, sooner or later, most people will need to use a credit card. Here are the best credit tips for millennials, old and young.

Younger millennials: Consider future financial goals
Younger millennials (from about age 22 or 23 to about age 27 or 28), are beginning their careers. Younger millennials are establishing themselves in the workplace and have different credit requirements than older millennials, 28-34, who are likely settled in their first "real" jobs and may have taken their first steps on the property ladder and may have started a family.

The young millennials may have less ability to secure large amounts of credit at advantageous rates, because they are still building a credit profile and are likely to have a shorter credit history from which lenders can assess their creditworthiness.

So, if you are on the younger end of the millennial spectrum, look at your future financial goals before applying for a credit card.

If you simply want to build up a good score, opt for a "no-frills" credit card with as low an interest rate as you can find, or consider a credit-builder card.

Use either the no-frills or credit-builder card responsibly for six months or so (repaying the balance in full each month, never exceeding the limit, etc.), and you should see your credit score rise, which will help you qualify for other cards, such as travel or cash back rewards cards.

On the other hand, if you are hoping to use credit for big-ticket items, a 0% purchase credit card can help you spread the cost without any extra fees - so long as you repay the balance before the 0% interest period ends. Often, cards will offer no interest on purchases for six months or a year, so be sure to keep an eye on the calendar.

A 0% purchase credit card may be hard to get for a young millennial with a thin credit file, though.

"Anyone looking for a credit card should use the credit checker tools that some issuers offer to check their eligibility before making an application," Simon Hall, senior public relations manager at Virgin Money, said in an emailed response to questions.

These tools can give you a very good indication on whether you'll be accepted for the card - without a hard pull on your credit score, which can lower it.

Older millennials: Consider past debt, near-future expenses

Further into your financial life, your needs change. As older millennials, you may be carrying debt from some unwise credit choices as a younger 20-something, or you may be planning a wedding, buying a home or starting a family.

If you carry debt accrued from earlier in life, consider a card with a good balance transfer offer. Hopefully, you've been paying your bills on time (if not in full) and not maxing out your card limits. If so, you could have the option to transfer an interest-accruing balance to a card with no interest on balance transfers.

There are, of course, balance transfer pitfalls to consider, but overall, this can be a great way to pay down existing debt at a lower cost so you can prepare for bigger financial events, such as obtaining a mortgage.

Additionally, as you begin paying for wedding expenses, big-ticket items for your home or baby items, you may want a card that pays you back for your extra spending. If you played your cards right as a younger millennial, you should now be able to qualify for cards that offer travel rewards, points or cash back on your purchases.

How to manage "invisible" money
As you become more experienced at managing credit, you need to develop skills that ensure you use this "invisible" money in the smartest way possible, by gaining the benefits and avoiding the pitfalls that can lead to unmanageable debt.

"It's a balancing act," said Jones. "Ensuring you have more money coming in than going out will help you stay on top of your finances and help you avoid either running out of money or going into an unplanned overdraft at the end of the month."

To manage "invisible money", follow these golden rules:

  • Always pay the balance in full each month (if you don't have an interest-free deal).
  • When using a 0% purchase or balance transfer deal, divide your balance by the number of interest-free months and pay that amount back each month.
  • Your name, your responsibility: Remember, when you sign up for a credit card you are agreeing to follow the terms and conditions and not doing so can affect your eligibility for credit in the future.
  • Keep track of your spending - use your online statement, a spending app or even "old school" pen and paper to track of where your money goes so you aren't unpleasantly surprised when your bill arrives.
  • If you go paperless, be sure to stay on top of bills by setting an alert in your smartphone or writing it on your calendar or in your diary.

See related: Choosing the right card as your family grows; Credit, finance tips for Brits in their 20s; How to manage debt on an unpredictable income

Published: 25 October 2017