New research reveals credit card usage is declining among young people. Nowadays, almost half of those aged under 35 don’t own one.
So, why is this? And are young people missing a trick by staying clear of credit cards? Let’s take a look.
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Credit card usage: what the data tells us?
According to GlobalData, 47% of under 35s don’t own a credit card. This compares to just 39% reported in 2016. This tells us that credit card usage is clearly declining among young people. This trend has been partly down to the growth of Buy Now Pay Later (BNPL).
As Jaimini Pattani, banking analyst at GlobalData, explains: “Not only are alternative financing options such as BNPL increasingly offered on social media, where younger people shop, they also make purchasing on credit easier.
“BNPL is allowing buyers to simply view credit options at the point of making a large purchase, rather than having to apply for a credit card at the bank. Further, BNPL services offer interest-free purchases, have softer credit checks and are often manageable via apps.”
Interestingly, GlobalData also highlights that 93% of millennials without a credit card say they have no intention of ever getting one.
Why are young people shunning credit cards?
As suggested by Jaimini Pattani, the rise of BNPL is a big reason why young people are shunning credit cards.
BNPL offers an easy way to borrow money for purchases and doesn’t require a ‘hard’ credit check. Furthermore, many BNPL providers don’t charge users any interest or fees.
In contrast, credit cards have a bad reputation for charging users sky-high interest. Some of the worst culprits have interest rates close to 40%! Credit cards, if used incorrectly, can also mark your credit file and charge you additional fees for missing repayments.
While repayment behaviour on BNPL doesn’t currently impact your credit score, one credit rating agency will soon begin to take BNPL repayments into account. As a result, the benefit of opting for BNPL over a 0% credit card may soon wane for some.
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Are young people making a mistake by avoiding credit cards?
Here are four reasons why young people may be making a mistake by avoiding credit cards.
1. They can boost your credit score
While one credit rating agency will soon take BNPL repayments into account when calculating your credit score, the UK’s three other rating agencies have not yet indicated whether they’ll follow suit. This means most BNPL schemes won’t help to boost your score, even if used responsibly.
In contrast, any credit card can help to boost your credit score, as long as you make repayments on time and stay within your credit limit. If your credit score isn’t great, then a credit card for bad credit can help.
2. You can borrow at 0% (and spend at any retailer)
If you’re looking to borrow, 0% purchase credit cards can give you a long interest-free period on your spending. So rather than being restricted to one particular retailer (as is often the case with BNPL), a 0% credit card will, within reason, offer you full flexibility on where you can spend.
Right now, you can get 23 interest-free months with the M&S Shopping Plus card, which is the longest guaranteed 0% period available. Plus, you’ll also get £25 cashback if you spend £100+ on the card within 90 days (21.9% rep APR). See our top-rated 0% purchase credit cards for more options.
If you are accepted for a long 0% deal, remember to always make at least the minimum monthly payment and clear your card in full before the interest-free period ends.
3. Some cards will reward you for using them
Even if you aren’t looking to borrow or boost your credit score, did you know that some credit cards will reward you for spending on them?
For example, some cards offer points or cashback every time you use them. So, as long as you pay off your balance each month and stay within your limit, you can profit!
The fee-free Amex Platinum Everyday is one of The Motley Fool’s top picks for cashback. The card pays 5% introductory cashback on spending, and then up to 1% after (24.5% rep APR). See our list of top-rated reward credit cards and top-rated cashback credit cards for more options.
4. Credit cards give valuable consumer protection
Spend between £100 and £30,000 on a credit card and Section 75 of the Consumer Credit Act applies to your purchase. This is valuable consumer protection as it makes your credit card provider equally liable should anything go wrong.
When should plastic be avoided?
While getting a credit card offers clear benefits, it can be very harmful to your finances if used incorrectly.
If you lack the discipline to repay your balance on time or you fear you’d use a credit card as an excuse to overspend, then it’s best to avoid getting one.
For more tips, see our guide to how credit cards work.
