Young Americans Are Ditching Credit Cards

[Hum]

The number of young Americans who are living without credit cards has doubled since the recession, according to new research.

About 16% of consumers ages 18 to 29 didn't have a single credit card by the end of 2012 -- up from 8% in 2007, according to data that credit score provider FICO collected from the credit files of millions of consumers.

As a result, credit card debt has declined by about a third among this age group -- from an average $3,073 to $2,087 per person.

After watching older generations -- like their parents -- get hit hard by the recession, many younger Americans are shying away from credit and opting for debit cards instead, according to FICO.

Prepaid cards have also become attractive alternatives, said John Ulzheimer, president of consumer education at SmartCredit.com.

"[T]here has been very aggressive marketing of prepaid debit cards over the past few years targeting young people and minorities," he said. "So it's not a surprise that more young people are using prepaid debit cards over credit cards."

In addition, the CARD Act, which took effect in 2010 and requires consumers under age 21 to have a co-signer or to earn enough income to make full payments, has also made it harder for this group to qualify for credit cards, FICO found.

Along with credit card debt, overall debt has fallen among this younger group. Even with the surge in student loan debt, this younger group has seen an even more rapid decline in other debts like mortgages. And this shedding of debt has translated into higher credit scores, with the number of consumers 18 to 29 years old with excellent FICO scores of 760 or higher jumping from 8.6% in 2005 to 11.2% last year.

Older Americans are another story, however. While they also lowered their credit card debt, they racked up more auto and mortgage debt.

Consumers 40 and over therefore have more overall debt today than they did in 2005. And as a result, FICO scores have fallen 1.7 percentage points among the 40 to 49 age group, 1.8 percentage points for those ages 50 to 59 and 3.8 percentage points for consumers 60 and older.

"[P]arents are having to take on more debt to help their kids make ends meet," said Ulzheimer. "And, thanks again to the CARD Act, more parents are being asked to co-sign for their younger non-working children who want a credit card."

source

[notchinese]

That is dumb. Like it or not you need good credit. Credit cards are a great thing, just don't be an idiot with them. Its not that hard.

[vcfan]

the reason why I have credit cards is not for the actual borrowing of money, but you need a credit card to book a hotel room,rent a car, and when you apply for things like car financing,getting approved for a phone, or applying for a mortgage. But I like these visa and mastercard debit cards the banks are doing. For a lot of people, this eliminates their need for actual credit cards,and this prevents them from going into debt,but then again,how do you build credit?

[Sylar0]

That is dumb. Like it or not you need good credit. Credit cards are a great thing, just don't be an idiot with them. Its not that hard.

Erm say what why the hell would I need credit im not American but its a similar thing here in the UK older people all have credit us young people im 22 nearly (long an adult in this country) don't and won't ever have one. Why would I need a credit card or good credit ill just live with what I earn.... seriously enlighten me I don't expect to need a credit history to get a mortgage should I even want one.

[greenwizard88]

I have a credit card, and get about 4 offers a month from various companies. I'm also not an art history major living at home, so...

[COKid]

Credit cards are a great thing...

Lol. Yeah, they're great all right.

For myself, I'm proud to be debt AND credit card free! I pay as I go. Imagine that in this day and age. Delayed gratification. What a concept! The only thing I will need credit for will be a mortgage, if I even decide to buy someday. All the rest; cars, vacations, etc., I pay as I go. I tell ya, it's feels great to be off the wheel.

But for sure, you have fun with your credit cards. :woot:

[Hum]

... seriously enlighten me I don't expect to need a credit history to get a mortgage should I even want one.

In the USA, not having an established credit history can hurt your chances of borrowing.

[Anibal P]

That is dumb. Like it or not you need good credit. Credit cards are a great thing, just don't be an idiot with them. Its not that hard.

You can have and get great credit and never get a ripoff card, it's only purpose is to keep you in debt indefinitely

[Sylar0]

In the USA, not having an established credit history can hurt your chances of borrowing.

Same here but what would I borrow for? Seriously my parents have never borrowed anything in their lives.

[Hum]

^ Smart -- Props to them ;)

[notchinese]

You can have and get great credit and never get a ripoff card, it's only purpose is to keep you in debt indefinitely

I have never held a balance on my CCard, not once. They are better than debit card because they are safer, and some places even require credit cards. I don't have an ounce of debt.

Same here but what would I borrow for? Seriously my parents have never borrowed anything in their lives.

Do your parents live in a house made of dirt?

[farmeunit]

Erm say what why the hell would I need credit im not American but its a similar thing here in the UK older people all have credit us young people im 22 nearly (long an adult in this country) don't and won't ever have one. Why would I need a credit card or good credit ill just live with what I earn.... seriously enlighten me I don't expect to need a credit history to get a mortgage should I even want one.

Some people have them for emergencies. If you're living on what you earn, but don't save anything, what happens if your car needs repairs, or something else happens? I haven't had a credit card for years, because I get in trouble with them when young, but there are times I wish I had one "just in case". Luckily, I've had friends that could help out. Sometimes that's not an option.

[Spartan Erik]

As long as you use your credit card responsibly and have the cash in your checking (or less preferably, savings) to cover the purchases, that's perfectly fine.

I use my Chase CC for all purchases since I get rewards points/cash back, and extra % off purchases from select retailers depending on the quarterly promotion cycle. It's better than nothing that I would receive via cash or debit. Just pay the bills on time to avoid interest, and you're A-OK

[Arachno 1D]

Of course these figures may be biased by the fact long term unemployed people may be unable to get credit cards.

[perochan]

Same here but what would I borrow for? Seriously my parents have never borrowed anything in their lives.

well, if you guys make enough money to pay everything in cash, then i guess it is ok to not have credit cards.

[srbeen]

building credit is different than having credit.

Borrowing and showing you can pay it back on time is great. Not having borrowed before and having a proven pattern is not wonderful.

Credit cards are great for keeping track of where you spend what, but with that comes the 21-days you have to shell out that cash again. If used correctly credit cards can be a great tool, organizing your life while building a credit rating with finance companies. Screw up ONCE and you will pay for it for 3 months. Literally.

If you get a credit card and put things on it, then pay them off within the same week, your rating score will fly through the roof. Do this rather than abusing it.

[+Majesticmerc MVC]

Erm say what why the hell would I need credit im not American but its a similar thing here in the UK older people all have credit us young people im 22 nearly (long an adult in this country) don't and won't ever have one. Why would I need a credit card or good credit ill just live with what I earn.... seriously enlighten me I don't expect to need a credit history to get a mortgage should I even want one.

You have a good attitude to money, but unfortunately we don't live in an ideal world.

Credit scores don't exist to measure how much debt you have, but are used to show how good you are at handling the debt you have. Institutions such as banks (and places such as letting agents, insurance brokers, etc) will all do credit checks to ensure that you are a worthwhile investment by checking to see if you'll actually pay them back. A bad credit score will set off alarm bells and make it hard for you to get loans, mortgages, insurance (and so on) because you are shown to be bad at handling your debts. If you've never had debt before (through a loan, a credit card, etc), you are a 'closed book'. Banks will often prefer a mortgage applicant with well-managed debt over someone with no debt because if you've never repaid a loan/mortgage, they don't know if you could handle the repayments.

The credit score will obviously be only part of your application checks, but it helps immensely if you have a good one. In my case, I was in a similar position to that which you describe at the start of this year (plenty of income, no credit cards or debts) and I wanted to get a loan to buy my new car. My girlfriend was also buying a car (we needed new ones to replace our bangers) and applied for her own loan as well. She currently has a well managed debt structure with a couple of paid off credit cards and mortgage on a house (not ours, which we rent). We applied for almost identical loans, and because of her high credit score, the bank gave her a 1.5% decreased interest rate on her loan. Hence I, with no debt, got 7.9%, and she got 6.4%, which works out around a few hundred ??? in savings over the course of the loan.

Two examples of why it may be desirable to have a good credit score:

• Applications for Mortgages and Lettings BOTH require credit checks, better credit scores will allow you to secure a rental application or your mortgage. So if you need somewhere to live, its better to have a good credit score.
  
• "Living on what you earn" is definitely a good attitude, but things can happen which will necessitate you needing to borrow money. In my case, it was to replace a car that was going to break down any day, and I didn't have the money to replace it. Without my car, my ability to earn money is hindered and I risk hurting my income by NOT taking out a loan for a new car. I can pay the loan back no problem, but I needed the bulk cash to get the car initially. That make sense?
  

Of course, living within your means is a given. No-one should ever, EVER, try to borrow more than they can repay. Before taking out my loan of several thousand pounds for my car, I created tons of spreadsheets, documents, receipts, accountancy documents that I used to determine the suitable amount of money I could borrow. I literally spent weeks preparing to even apply for a loan. Then the bank did the same by analysing my income and expenditure through my bank accounts to ensure that I was responsible with my money.

Don't get me wrong, the whole thing sucks arse, but money runs our lives much more than we'd like, and unfortunately if we want to borrow money (or find somewhere to live, or get insurance, etc, etc) we're going to have to play their silly little game. The key is to not let them win by getting into trouble.

[KingCracker]

Erm say what why the hell would I need credit im not American but its a similar thing here in the UK older people all have credit us young people im 22 nearly (long an adult in this country) don't and won't ever have one. Why would I need a credit card or good credit ill just live with what I earn.... seriously enlighten me I don't expect to need a credit history to get a mortgage should I even want one.

To buy a car for one thing. Unless you buy a car outright you'll need good credit if not then you wont be able to buy one or you'll get a high interest rate.

[slapfacemcdougal]

You don't need a credit card to establish a credit rating. You can do the same thing by taking out a small loan and paying it back in a timely fashion, and rinse and repeat.

Take out a $500 or $1000 dollar loan.. pay on it for a good long time and you'll get good credit in no time.

[devHead]

Same here but what would I borrow for? Seriously my parents have never borrowed anything in their lives.

That's great, but most people cannot pay outright for things like a house or a car. Having a credit card isn't what's bad or stupid, it's using it indiscriminately. My wife and I have extremely good credit, but we only use our credit cards when we already have the money to pay. This helped a lot since we just moved back to the states and had no problem getting a USDA (read: 3.375%) loan for a house. Aside from our bank credit cards, we have a Kohl's credit account, because you can save a lot when you use it instead of a debit card or cash. But again, we pay it off soon after we purchase something. I never pay any interest on my credit card, only the principal.

[Lewism]

You don't need a credit card to establish a credit rating. You can do the same thing by taking out a small loan and paying it back in a timely fashion, and rinse and repeat.

Take out a $500 or $1000 dollar loan.. pay on it for a good long time and you'll get good credit in no time.

Except that you waste money on interest. With a credit card, if you pay the balance each month, you will have no interest to pay and you build your credit up.

[peter_uk]

Make credit cards work for you. I use 2 for the benefits 1 of them earns me money every time I use it while the other allows me to use it abroad or online in a foreign currency, better conversion rates than Pay pal without any charges. Both are paid of in fully automatically each month. So there is no downside plus there are added benefits with all credit cards in the UK section 75 where if you pay for something between ?100 - ?30,000 and for example you buy a holiday and then the company goes bust, your credit card company with refund your money. This is not really the case with debit cards.

[slapfacemcdougal]

Except that you waste money on interest. With a credit card, if you pay the balance each month, you will have no interest to pay and you build your credit up.

True but then it's too easy to make your available credit sky rocket if you do that.

[Sir Topham Hatt]

I have a credit card for spending abroad.

In the UK, paying bills and having a mobile phone contract helps towards your credit rating.

Never really use the credit card in the UK as I use the debit card for everything. I also wait until I can afford it before I buy it. I don't really understand people who don't :/

[Growled Member]

Just ask the millions of Americans way over their heads in debt if credit is a good thing.