Why more Millennials should consider a credit card

Almost half of Australian Millennials don't own a credit card. Find out why this is a problem and how you can kickstart your credit history with your first credit card.

A recent survey shows that a shocking number of Millennials are yet to acquire a credit card. While it may seem normal for fewer members of Gen Y to use credit cards than their older Gen X and Baby Boomer counterparts, this trend is worrying.

It’s not a good idea to start using any form of credit before you’re financially prepared, but getting a credit card earlier in your adult life can help you build your credit history and budgeting skills. Owning a credit card earlier in life (and using it correctly) can help improve your likelihood of approval when applying for future finance, such as a car loan or mortgage. Lenders use your credit history as an indication of your ability to repay. If you don’t have any activity, this can be as damaging as having a bad credit history.

Analysing the survey results, we’ve compared how many Aussies own credit cards in each generation and highlighted some of the simple ways you can use your first credit card to build up your healthy credit history.

How many Australians own credit cards in each generation?

According to a recent survey conducted by, 45% of Australians aged 18-35 in Gen Y (otherwise known as Millennials) don’t have a credit card. This is just under double of the number of Generation X-ers (35-54) who don’t have credit cards (24%) and more than double of the 20% of Baby Boomers (55+) who don’t have credit cards.

It makes sense that fewer Australians aged between 18 and 35 would have credit cards than the Gen Y or Baby Boomers generations, but the most alarming reality about this statistic is that just under half of all Millennials aren’t building up a credit history that will help secure their finances down the track.

The number of Millennials who own credit cards has also decreased by approximately 10% in the last 6 years. In a survey conducted in September in 2010, found that 65.07% of Australians aged between 18 and 35 had a credit card. This was still lower than members of Generation X (82.18%) and Baby Boomers (79.84%) at the time, but the credit card disparity between the generations was much smaller.

It’s difficult to say exactly what has caused this fall in credit card use among Millennials, but one reason could be the rising levels of credit card debt in Australia over the last few years.

In December 2015, reported that national credit card debt had risen to $52 billion, with the average person carrying $3,192 in debt, $1,971 of which is collecting interest. This same report also revealed that the average age that Australians start collecting debt is 27, which falls in the Millennials age bracket. These statistics alone could be enough to deter a potential first-time credit card owner. Unfortunately, lack of awareness around how credit cards work could also be contributing to the falling numbers of millennials with credit cards.

Why more young Australians should start using a credit card sooner rather than later.

While it’s wise to avoid applying for a credit card before you can afford it, there are downsides to putting it off for too long. As well as acting as a convenient line of credit, one of the main advantages to getting a credit card is building up a healthy credit history. When you need to apply for a home loan or car loan in the future, the lender will base much of their decision on the information in your credit history.

The lender will use your credit history (as well as other information such as your employment and income) to determine whether you’re a low-risk applicant with a sound ability to make regular repayments. If you don’t have a credit history, it’s difficult for lenders to determine whether you’re a high or low-risk applicant. That means you'll potentially be turned down, or face higher interest rates and fees.

How can you build up a good credit history with your first credit card?youngpersoncreditcard

If you’re one of the 45% of young Australian who doesn't own a credit card but you're looking to compare your options, here are some tips for using your card to build up your credit history while reducing the risks of debt:

    • Use your credit card for your regular expenses

      Each month, you have regular payments that you know you have to pay and can usually cover with your debit card. Such expenses include your Internet, TV and music streaming subscriptions, gaming subscriptions, phone bill or rent. These are (usually) set expenses that you would pay with your salary, so you know you have the funds to cover it. If you use a credit card to cover these costs, you can then use the money from your debit account to pay off the card before the repayment period ends. Not only will you avoid interest charges, this will also demonstrate to lenders that you have the ability to repay your debts on time.

    • Spend with a budget in mind

      If you’re going to use your card just to pay off a certain number of bills or regular costs that you know you can repay each month, set yourself a budget (say $300) and avoid going over it. If your phone bill is larger than usual, perhaps cut back on other costs you’d regularly pay with your credit card. Your bank will set a minimum repayment (say of 3% of your balance), but it’s best to pay it in full each month. This will help you avoid going over your budget and falling into a position where you can’t repay the balance on your card. You can plan your repayment strategy using our credit card debt reduction calculator.

    • Set up automatic payments

      For your first credit card, it's crucial to make sure you pay your balance in full before the interest is applied. If you're only spending a certain amount on your card each month, consider setting up automatic repayments from your debit card to your credit card. This could be an easy way to make sure you’re paying on time each month, will help you avoid accruing interest and (again) will show future lenders your ability to pay your bills on time.

    • Avoid using your credit card when you’re low on cash

      If you want to use your first credit card to build up healthy credit, avoid using it when you’re low on cash. For example, if Christmas is coming and you can’t afford all of the gifts you planned to purchase, avoid using your credit card as a backup. If you use your credit card and don’t repay the money you spent on Christmas gifts before the interest kicks in, you could be charged interest and build up debt. The more interest you accrue, the larger your debt will become and the harder it’ll be to repay your balance. Instead, it might be better to leave your card at home to avoid the temptation to spend money you don’t have.

    • Start off with a student or low fee credit card

      If you haven’t had a credit card before, student credit cards or products with low fees are a good place to start. Either of these options could offer you a low and manageable credit limit, low interest rates and a low or $0 annual fee. While these cards don’t come with premium additional features, they’re a smart option if you don’t have much experience with a credit card and are looking for a no frills product to build up your credit history. As these cards are designed for first-time cardholders, they usually come with lower minimum income requirements and sometimes no credit checks.

As the number of Millennials who own credit cards has dropped significantly over the last six years, it's key that young Australians learn the importance of your first credit card. Not only can you build up a healthy credit history for future loan applications, you’ll also pick up management and budgeting skills that will help keep your finances on track in the future. If you're not sure where to start, use our helpful and easy-to-use comparison tables to weigh up your options.

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Pictures: Shutterstock.

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