Death of the credit card? Young people avoid credit cards for a reason

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New research reveals that credit card use is declining among young people. Today, nearly half of those under 35 do not have one.

So why is this? And are young people missing a trick in avoiding credit cards? We’ll take a look.

Use of credit cards: what does the data tell us?

According to GlobalData, 47% of people under 35 do not have a credit card. This compares to only 39% reported in 2016. This tells us that credit card use is clearly on the decline among young people. This trend is partly due 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 available on social media, where younger people shop, but they also make it easier to buy on account.

“BNPL allows shoppers to simply see credit options when making a major purchase, rather than having to apply to the bank for a credit card. Additionally, BNPL services offer interest-free purchases, have verifications more flexible and are often manageable via apps.

Interestingly, GlobalData also points out that 93% of millennials without a credit card say they have no intention of getting one.

Why do young people avoid credit cards?

As Jaimini Pattani has suggested, the rise of BNPL is a major reason young people are avoiding credit cards.

BNPL offers an easy way to borrow money for purchases and does not require a ‘rigorous’ credit check. Additionally, many BNPL providers do not charge users any interest or fees.

Credit cards, on the other hand, have a bad reputation for charging exorbitant interest to users. Some of the worst culprits have interest rates approaching 40%! Credit cards, if misused, can also flag your credit report and charge you additional fees for missing refunds.

Although BNPL repayment behavior currently has no impact on your credit score, a rating agency will soon begin to consider BNPL repayments. As a result, the benefit of opting for BNPL over a 0% credit card may soon fade away for some.

Are young people making a mistake by avoiding credit cards?

Here are four reasons why young people can make a mistake avoiding credit cards.

1. They can boost your credit score

While one credit rating agency will soon take BNPL refunds into account when calculating your credit score, the other three UK rating agencies have yet to say whether they will follow suit. This means that most BNPL programs will not help you increase your score, even if used responsibly.

In contrast, any credit card can help boost your credit score, as long as you repay on time and stay within your credit limit. If your credit score isn’t great, 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% spend credit cards can give you a long period of interest-free spending. So rather than being limited to a particular retailer (as is often the case with BNPL), a 0% credit card will, within reason, give you complete flexibility as to where you can spend.

Currently, you can enjoy 23 months interest free with the M&S Shopping Plus Card, which is the longest guaranteed 0% period available. Plus, you’ll also get £25 back if you spend £100 or more on the card within 90 days (21.9% rep APR). Check out our best 0% spend credit cards for more options.

If you are accepted for a long 0% transaction, remember to always make at least the minimum monthly payment and pay your card in full before the end of the interest-free period.

3. Some cards will reward you for using them

Even if you’re not looking to borrow or boost your credit score, did you know that some credit cards will reward you for spending?

For example, some cards offer points or cash back every time you use them. So as long as you pay off your balance every month and stay within your limit, you can enjoy it!

The no-fee Amex Platinum Everyday is one of The Motley Fool’s top picks for cashback. The card pays 5% upfront cashback on spend, then up to 1% after (24.5% rep APR). Check out our list of top rated reward credit cards and top rated cash back credit cards for more options.

4. Credit cards offer 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 protection for consumers because it also makes your credit card provider liable if something goes wrong.

When should you avoid plastic?

Although getting a credit card has obvious benefits, it can be very detrimental to your finances if not used correctly.

If you lack the discipline to pay off your balance on time or are worried about using a credit card as an excuse to overspend, it’s best to avoid getting one.

For more tips, see our guide to how credit cards work.

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