3 things millennials need to know about credit cards — Business Insider Deutschland
Justin Sullivan / Staff / Getty ImagesFrom one millennial to another, I have an important message: Credit cards can be your friend or foe, but it all depends on how you treat them.
Credit cards offer the ability to build a credit score, which yields a lifetime of benefits. Those who take a more active approach can reel in bonuses valued at hundreds to thousands of dollars of travel money. When used responsibly, credit cards can be a very powerful financial tool for the younger generation.
Here are a few things millennials should know about how credit cards work and why credit cards aren’t just another way to borrow money.
1. Paying interest is a choice
Credit cards often get a bad reputation because of their high interest rates or fees when people carry a balance. But this puts all the responsibility on the card company rather than the cardholder. The right way to think about it is that paying interest or fees on a card is a choice. The only way to pay a finance charge on a credit card is by choosing not to pay the balance in full each month.
Take it from a fellow millennial who has a few different credit cards: You don’t need to know your productos bancarios (Learn Even more) card’s interest rate if you pay them off in full. Some of my cards might have an APR of 13%, and others may have 27%. I really don’t know. The only numeric things I know about them off the top of my head is which one has a rewards program that will get me to the next vacation faster if I’m buying lunch or paying for an Uber (this one), and which one pays the highest cash back rate on everything else (there are so many).
All this is to say that if you use a credit card as responsibly as you would a debit card or cash, there’s nothing to fear. In fact, credit card companies make it easy for you to avoid interest. On your statement, you’ll see the «statement balance,» which is the amount you need to pay to avoid rolling balances and incurring interest charges.
2. You don’t need one (but they can help)
An article by BankRate tells the tale of millennials who, because they have no credit history, found it more difficult to get car loans or rent an apartment. If only they had opened a credit cardeven a year earlier, most would have likely sailed through the car loan or apartment application process.
A credit report is to your finances what a college or high school transcript is to your academic performance. Having no credit history to speak of can make it more difficult to get a loan in the future to buy a car or home or even to rent a home from someone else.
Of course, many millennials have student debt in their own names, which, when paid on time, will result in good credit history and thus a good credit score. But these records will fall off as they are paid off, and a small piece of the credit-scoring puzzle consists of the types of files on your credit report. Having a revolving account like a credit card in addition to an installment debt like a student loan is better than having just one or the other, all else equal.
Even credit-hating millennials should consider cozying up with a credit card if only for the benefits to their credit report. Building credit with a card is painless, even easy. Simply pay a recurring charge (Netflix, for example) with a credit card, and then set up automatic payments so that your credit card is paid in full each month.
Less than an hour of effort today sets you up for a lifetime of benefits should you decide to finance a home, car, get insurance, or even apply for a job. Your credit report and score plays an important role in most of life’s most important events.
3. There are two ways to play the credit card game
It’s interesting that millennials seem to find themselves in one of two fundamentally different camps when it comes to credit cards. Some avoid them like the plague or use them only sparingly, fearing the consequences of accumulating debt at eye-popping interest rates. On the other extreme, a very small minority sees them as a financial tool to exploit, taking advantage of sign-up bonuses on travel rewards cards to go on vacations they could never otherwise afford, giving rise to creditos rapidos online asnef communities dedicated to «travel hacking.»
Thus, the approaches can be divided between low-effort strategies designed to simply check a box on a credit report and high-effort ones meant to collect every last mile or point from credit card bonus offers.
It can make sense to have a credit card as a practical matter, if only because they make renting a car or staying in a hotel a lot easier than if you pay by debit or cash. Furthermore, credit cards offer some additional protection for big purchases, particularly if the merchant has a bad return policy or if the price drops shortly after you buy. See this article on card perks, specifically the paragraph on perks like purchase protection.
On the other side of the coin, cards offer big rewards for staying on top of card promotions. Here on Fool.com, we’ve found three travel cards that together offer more than $1,225 of travel creditos rapidos online rapidos sin asnef (Learn Even more) value for cardholders who qualify for their new cardholder bonus offers. Given that many carry annual fees are only waived for the first year, it takes an active approach of managing your accounts to extract the most value, if you choose to take this active approach.
The key point: Just as you don’t have to be a travel hacker to get benefits from a credit card, having a credit card doesn’t mean you’ll automatically find yourself in $20,000 of high-interest credit card debt. Used properly and responsibly, credit cards are a very valuable financial tool, whether you were born in 1992 or 1932.
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