In order to get their marriage off on the right foot the couple decided to try living without credit cards to help them stay within their means.
“Paying off school or car debt is fruitless if the credit card debt keeps accruing,” Faley explains. So, soon after they married, Faley and her husband paid off their credit debt and cut up their cards.
They are not alone. According to an April 2015 study by CreditCards.com, 36 percent of millennials between the ages of 18-29 don’t have a credit card.
For some, it’s a lifestyle choice, but for many millennials, student loan debt is impacting their ability to manage credit cards. Approximately 40 million Americans are now burdened with student loans, according to a March 2015 White House fact sheet. The average debt load is $28,400, and 70 percent of students who graduate with a bachelor’s degree leave school with some debt, the White House said.
“Student loans hold the most weight for us,” Faley says. She and her husband put their reserve income toward paying off one debt at a time, starting with the smallest one.
“One by one we have closed accounts: first credit card, then car loan, then five of our seven student loans,” she says.
In general, Americans’ reliance on credit cards has declined since the Great Recession, according to an April 2014 Gallup poll. Additionally, many millennials see credit cards as a sign of irresponsible spending and the harbinger of unwanted debts.
“[My husband] doesn’t go on a trip unless there is money in the bank,” she says. “He plans for a rainy day—and usually a thunderstorm, at that.” She says that, so far, their lack of credit card use has not impacted their ability to rent.
“We do hope to buy a house in a couple of years, so we will just have to cross that bridge when we come to it,” Faley says.
Not all millennials are forsaking credit, however. Kyle Callahan, a 27-year-old healthcare sales manager, says his credit card rewards help him to get free flights.
“I use [a credit card] almost every day for my own purchases and for business expenses as well,” Callahan says. He says he hopes to be able to buy a house one day, which is one of his motivations for using a credit card to help build a credit history.
Callahan does not carry a balance, and if he notices that he is approaching a quarter of his credit limit, he will pay off the bill midway through the month. His credit limit has doubled twice since he has opened the card, which helps him to maintain a good credit utilization ratio.
Three ways to build healthy credit habits
If used wisely, credit accounts can add positive information to your credit report. Additionally, having a mix of installment loans, such as student loans, and revolving accounts, shows lenders you can manage different types of accounts. If you have never had a credit card but are considering opening a new account in order to build your borrowing history, here are some healthy credit habits to take into consideration:
1. Pay your bills on time and in full.
Missing your bill payments or paying late can have an impact on your credit score and borrowing history.
You may also want to consider paying your credit card bill in full every month if possible. Carrying a balance from month to month will add to your debt and could increase the amount you owe over time, due to accruing interest.
2. Keep your balances in check.
Your credit score takes into account your credit utilization ratio, or how much of your available credit you are using. The amount you owe is an important aspect of your credit score, and lenders like to see borrowers use less than 35 percent of their overall credit limit . If you need to charge several big expenses at once, you may want to take a cue from Callahan and pay off your balance immediately.
3. Check your credit report and credit score.
As you work to build a credit history, it’s important to review your credit report and make sure all the information that appears there is correct. You are entitled to one free credit report every 12 months from each of the credit reporting agencies (CRAs) through AnnualCreditReport.com .
When used responsibly, credit cards can be a good way to help build a credit history.
Camille Puschautz is a researcher, writer, and web producer at Think Glink Media, with a background in print and digital media. She is a graduate of the University of Dallas and Northwestern University, where she received a master’s degree in journalism.
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