Mistakes Millennials Make with Their First Credit Cards

Getting your first credit card offer in the mail is often a thrill. Many new cardholders, particularly younger ones, may throw caution to the wind in the excitement of the moment, and immediately begin running up balances. Millennials — those who are roughly 20 to 35 years old, an age when it's common to get credit cards for the first time — can run into problems if they abuse their new financial flexibility, or don’t quite understand what they’re getting into.

 

Not Paying in Full

Some Millennials are of the mistaken belief that they must carry balances on their credit cards to improve their credit scores. The truth is that carrying a balance is more likely to hurt you than help you. Credit scores are based in part on your credit utilization rate, which is the percentage of your available credit that you're using. Utilization above 30 percent is a no-no if you want to maintain a good credit score.

Millennials who are carrying balances should also understand that this means interest charges will be added to their accounts each month. Credit card companies don't send bills for monthly interest charges — the fee is simply tacked on to the outstanding balance. First-time credit card users might not fully comprehend how much their credit is actually costing them.

 

Not Paying at All

One of the benefits of using a credit card is that you can pay your balance off over time if you can't afford to pay it in full. Some Millennials interpret this flexibility to mean they only have to make payments when and if they can afford to do so. Credit card companies establish minimum payment amounts that are due each month. Although you don't have to pay the full balance, you'll face late fees and penalty rates if you don't pay at least the minimum amount.

 

Applying at the Wrong Time

Some Millennials apply for credit cards at the wrong time. Credit cards are intended to offer financial flexibility to holders who can responsibly manage their money. Millennials with low credit scores due to financial mismanagement in the past are often the ones who think additional credit will solve their problems. This group is more likely to get rejected for new cards because they have less-than-ideal credit scores. New applications factor into the credit score calculation, so the more often these Millennials apply for cards, the more their scores will drop and the less likely they are to qualify for additional credit in the future.

 

Not Applying for Credit

Not applying for any credit can also be a mistake. According to Money Magazine, nearly one-third of Millennials have shunned applying for any credit at all. Without a credit record, these consumers won't have a credit score. Common Millennial goals, such as buying a car or renting an apartment, can be difficult without having a credit history. The length of your credit history makes up 15 percent of your credit score, so the longer you can show responsible credit usage, the more likely you are to have a higher credit score down the road.

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