Credit Cards Can Help You Build Good Credit -- and Earn Financial Perks

/ BY / Credit 101

A recent Bankrate survey found that 63 percent of young people in the Millennial generation—born between 1982 and 2002—don’t have a single credit card. That could be a problem as they move further into adulthood. Although the credit-card-avoiders may not get stuck with credit card debt, they will also lose out on the many benefits that come from using a credit card wisely.

There are many reasons why Gen Ys don’t have credit cards. During the Great Recession, they saw their parents, grandparents and older siblings losing jobs and struggling to pay off their debts, including credit card bills. They don’t want that to happen to them. The Gen Ys are also facing a world where it’s harder to get a good-paying job and to qualify for the credit cards that were handed out so freely to older generations. The CARD Act of 2009, which tightened restrictions on card applications for those under 21, meant that fewer young people got credit cards in college.

So many young people have never developed the credit card habit and see no reason to do so now. They prefer cash and using pre-paid cards in situations where others might pull out a credit card. While this strategy may pay off short term, it’s likely to cost them money over a longer period.

When lenders consider applications for vehicle loans or mortgages, one of the things that they want to see is that the applicant has established a pattern of paying off debt and making payments on time. They’ll also look at credit scores. One component of a credit score is how long the person has been using credit responsibly; another is the types of credit that someone has. When you get a credit card as soon as you can and use it responsibly, it will help create that mix of credit types and the credit history that lenders want.

Plus, the better your credit score, the more likely you are to qualify for the very best rates on mortgages and car loans. Over the course of a 30-year mortgage, that can save you thousands of dollars in interest costs—money that you can invest, use for vacations or to buy furniture, or save for college expenses or retirement.

There are other financial perks that come with using a credit card. For example, if you see a limited-time deal on something you need, like a new laptop, you can take advantage of the bargain price even if you’re short on cash until the next payday. You can get reward credit cards that will give you rebates on the gas that you buy, or that will help you earn points towards airline travel or certain online purchases. Depending on the card you choose, you may also get extended warranties when you buy some big-ticket items.

While avoiding excessive credit card debt is a good thing, avoiding the use of credit cards altogether is usually not. If you don’t have a credit card, consider applying for a credit card and start enjoying all of its benefits.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.