5 Things Millennials Should Know About Credit Cards

If millennials had to update their relationship status with credit, “It’s Complicated” would be the only appropriate option. They are less likely to have credit cards than their older counter parts and the average credit score of their generation is lower than any of their predecessors. However, this doesn’t mean that they are inherently irresponsible.

Millennials’ shorter credit histories as well as entering the workforce during an unprecedented recession certainly help paint some of the picture as to why their credit scores are low. As millennials continue to come into their own as professionals, these habits and attitudes about credit are bound to change. The following insights can help millennials navigate the world of credit cards.

1. Take Credit for Your Credit

This is not an issue with the major credit companies, but if you’re opening a line of credit with a smaller bank or lender, make sure that they’re actually reporting your activity to all three major credit bureaus. Given the issues major banks have gone through over the past decade, it’s understandable why some millennials may prefer to opt for a more local lender – making this seemingly foregone conclusion worth mentioning.

It doesn’t matter how well you manage your finances – if your credit history isn’t reported then your regular payments and low balances won’t help improve your credit score. So double-checking your financial institution regularly reports to all major credit bureaus ensures you’re receiving the full benefit of your responsible credit habits.

2. Monitor Your Credit Report

Your credit score can impact your ability to get a job, find a place to live and get a loan – so it’s important that all the information on your credit report is correct. Monitoring the activity on your report on a monthly basis allows you to confirm the accuracy of all personal information and lender reporting as well as watch out for irregularities that could tip you off to potential cases of identity theft. It’s always best to catch any issues early so you can start working to address them as quickly as possible.

3. You Don’t Need to Pay Annual Fees

Though common these days, annual fees are not necessarily a fact of life when opening a line of credit. So whenever possible, opt for cards that do not penalize you simply for beginning a credit relationship. Since you want to build and maintain credit history over a long timeline, it will pay off in the long run to avoid a situation where you’re charged every year regardless of your activity level.

4. Focus on Good Habits

While opening a cared with a low annual interest rate is important, millennials should really focus more on their spending habits once they get the card. Using credit responsibly will pay bigger dividends for you down the road in the form of more favorable lending terms for any larger purchases you want to make as you get older. So focus on only charging a balance you can fully pay off every month, which generally means utilizing no more than 10-20% of your capacity.

You also don’t have to worry about the interest rate when you’re carrying over a $0 balance each period. This means that using credit cards instead of cash responsibly provides the dual benefit of saving a lot of money while building a track record of responsible financial habits.

5. Keep Your Relationship Going

Congratulations, you’ve succeeded in finding a card with no annual fees and are minimizing your credit usage. While it may seem like an unnecessary burden to keep that account open, don’t forget that that card is still useful. The extra unused borrowing capacity looks great on your credit report and closing credit cards can actually hurt your credit score, compounding the positive effects of keeping unused cards around.