Millennials might be one of the most intriguing generations in history. They have challenged the status quo like never before. Organising climate change parades, fighting for diversity and inclusiveness, valuing experiences more than materialistic possessions – millennials are passionate and not shy to take a stand for things that matter to them.

They are the first generation to have grown up with technology impacting every phase of their life. Technically, millennials refer to individuals born between 1981 and 2000. Millennials are not just idealistic; they are also practical. A report by Merrill Lynch reveals that 82% of millennials invest in savings plans or employer-sponsored retirement plans. 

Have millennials ghosted credit cards? 

While millennials are generally technically savvy, there’s one product that hasn’t yet caught their fancy yet – credit cards; recent market research reveals that 1 in 2 millennials have only one credit card, and even those who own a credit card do not use it regularly. Compared with millennials, seniors and Gen-Xers use credit cards more frequently. 

So, what’s holding back millennials from using credit cards and benefitting from them? We believe several factors contribute to poor credit card usage among millennials:

  • Access to credit 

The problem with credit is that you need credit to get credit. With banks and lenders more averse to risk lenders, it’s difficult for young adults to get a credit card. Low salaries, poor credit scores (especially when they are just getting started) have made it difficult for young adults to get a credit card. 

  • Aversion to Debt

Millennials have been hit by two major economic crises while growing up – the financial crisis of 2007 to 2009 and the recent pandemic. They have also seen several members of the previous generation going bust due to huge unmanaged debt. This has made them extra cautious and avoid debt altogether. 

  • Other Alternatives 

The growth of the digital economy has provided millennials with plenty of other alternatives to a credit card. Today, it’s possible to “Buy Now and Pay Later” without having a credit card. 

With that said, we believe that young adults need to master the usage of credit cards as they offer better rewards, more protection compared to other commonly used payment methods. Credit cards are also a great tool to build credit so that you can take on bigger loans like home loans, car loans in the future at the best prices. 

If you’re a millennial who is missing out on the incredible benefits of a credit card or have been debating whether you should finally go for a credit card, you’ve come to the right place. This guide walks you through the basics of credit cards – how they work, credit card vocabulary, smart usage tips, and more.

Credit Cards: At a Glance

Credit cards are credit products that allow you to borrow money up to a specific limit. Once you repay the amount, the credit limit is rereleased. You will be charged interest if you don’t pay the credit card bill in full on or before the due date. Late payments attract steep interest rates. However, a positive payment track record helps you build your credit score and positive credit history. 

Credit Card Basics: What is a credit card? 

A credit card is a plastic card that offers you access to a personal line of credit. Every time you use a credit card to pay for a purchase, you’re borrowing money from the bank (or credit card company) to pay for it. You then repay this borrowed money in full at the end of the month (or at the end of the billing cycle). 

Repaying the borrowed amount within the due date incurs no additional charges. If you repay it late, then you have to pay additional interest. The credit limit is restored once you have repaid the borrowed amount. 

Credit Card Terms that You Need to Know 

Knowing the key vocabulary of credit cards will help you better understand how they work. 

  • Credit Limit

This is the maximum amount of money that you can spend on your credit card at one time. For example, if you have a credit limit of Rs. 50,000, then you cannot purchase more than Rs. 50,000 in a single bill. The better your credit score and income, the higher the sanctioned credit limit. 

  • Credit Card Balance

This is the amount you have spent on the card and haven’t repaid yet. For example, if you have spent Rs. 20,000 on your card – and haven’t paid the bill yet – then the credit card balance is Rs. 20,000. 

  • Available Credit

This is how you can spend on the card before you reach the credit limit. For example, if you have a credit limit of Rs. 50,000, and a balance of Rs. 20,000, then the available credit is Rs. 30,000. If you make a payment for Rs. 10,000, then the available credit increases to Rs. 40,000. This is why credit cards are known as a revolving line of credit. 

  • Billing Cycle

This is a specified period, after which you will receive the credit card bill. Generally, the billing cycle is set to 30 days. 

  • Statement Due Date

This is the due date by which you must pay your credit card bill if you do not want to incur interest charges, late payment penalties and other fees. Paying your credit card bill before the due date helps to build and maintain a good credit score. 

  • Minimum Payment

This is the minimum amount that you have to pay each month on your credit card bill. Generally, the minimum amount is a fixed percentage of the total balance. If you don’t make the minimum payment by the due date, the card issuer charges a late fee. 

If the payment is too delayed (by over 90 days), the credit card company reports the late payment to the credit bureaus and is noted on your credit report. So, it’s highly recommended that you make at least the minimum payment by the due date to avoid hurting your credit score. However, paying the bill in full helps you avoid additional interest charges. 

  • Annual Percentage Rate 

Also known as APR, the interest rate will be levied on your statement balance if you don’t repay it in full by the due date. 

  • Annual Fees 

This is the annual fee that you have to pay the credit card issuer for using the card. Some cards have zero annual fees, whereas others require you to pay a fixed sum every year. 

  • Joining Fees 

This is a one-time fee that you have to pay the credit card issuer when you get the card. 

  • Late Payment Fee 

This fee varies from one card issuer to another. This denotes the additional price you have to pay when you delay the credit card bill payment beyond the due date. 

  • Foreign Transaction Fees

Most credit cards include an additional surcharge of 1% to 3% when purchasing from a non-Indian merchant. Certain types of credit like travel credit cards do not charge foreign transaction fees. 

Smart Tips for Credit Card Usage for Millennials

The benefits of credit cards outweigh the costs of using one. If you’re still reluctant to use credit cards, make use of these smart tips to use them efficiently:

  • Pay your credit card bill in full and on time every month
  • Do not max out the credit card limit
  • Keep the credit card balance below 30% to improve your credit score 
  • Do not open too many cards 
  • Choose a card that fits your lifestyle 
  • Review your credit card account online, at least once a week to avoid overspending and detect frauds 
  • Understand the reward points and loyalty programs to get the maximum benefit out of your card 
  • Never share the card PIN or number online 
  • Wait at least six months before opening a new card 
  • Keep no-annual-fee credit cards open to boost your credit limit 
  • Go for a secured credit card against a fixed deposit, if you are not eligible for a credit card, based on your credit score 

Wrapping Up 

Using a credit card responsibly is a great way to boost your credit score and build a healthy credit profile. Don't be scared of credit cards; instead, use them smartly to avail the benefits and rewards offered on them. 

FAQ

  1. I have a debit card. Why should I go for a credit card? 

While debit cards are appealing and offered with a savings bank account – the drawback is that they don’t help you build a credit history. If you’re looking to improve your credit score so that you’re eligible for bigger loans in the future, then you need to go for a credit card. 

  1. What are the benefits of using a credit card? 
  • Helps build your credit score and credit history 
  • Rewards and cashback on the money you spend using the card 
  • Discounts, offers and other promotions 
  • Safe – compared to cash 
  • Access to a personal credit line to pay for purchases and meet emergencies 
  1. What are pre-approved credit cards? 

Pre-approved or instant approval credit cards are cards offered to you based on your credit history and usage. Generally, they are provided only to applicants whom the card issuer believes are eligible. 

  1. How to apply for a credit card? 

Applying for a credit card is super easy. You can complete the online application by filling the form, providing a few documents like ID proof, address proof, etc. Once approved, the card is sent to your address via post. 

  1. How old should you be to get a credit card in India? 

Generally, credit cards are offered to individuals over the age of 18 years. However, the lower limit varies from bank to bank.