Millennials are often portrayed as reluctant credit card borrowers who snub their noses at high-interest plastic and prefer prepaid cards and debit for most of their transactions. But according to recent research looking at millennials and credit, it appears that many would-be millennial borrowers would be happy to use credit cards to fund some of their everyday spending – if only banks would let them.
As banks make it easier for cardholders with blemished credit to qualify for a new card, many millennials – particularly those under the age of 21 – are still having a hard time joining the club.
According to a June 2016 survey by Bankrate, just 33 percent of young adults under the age of 30 own a credit card.
A recent New York Times analysis of Federal Reserve data also found that the percentage of young people under the age of 35 who carry card debt is currently at an almost 30-year low, indicating that it’s not just youth dampening millennials’ credit use. Today’s 20- and early 30-somethings are substantially less likely to use credit than earlier generations were at the same age.
Experts have suggested that millennials may rely less on credit, in part, because they’re reluctant to dig themselves deeper into debt.
The New York Times, for example, conjectured that millennials are “spooked” by credit cards after seeing friends and family members lose their homes or jobs during the Great Recession.
“Some older Americans have also been shedding credit card debt since the financial crisis that began in 2008. But for no other age group has the decline in the proportion holding credit card debt been more rapid than it has been for young Americans,” wrote Nathaniel Popper.
“It’s pretty clear that young people are not interested in becoming indebted in the way that their parents are or were,” Nilson Report publisher David Robertson said in the article.
But according to an October 2016 study by the alternative credit scoring firm ID Analytics, young adults under the age of 32 are applying for credit cards at a faster clip than older generations. But many of these young adults are getting rejected for cards, making them less likely to apply again in the future.
“While many millennials may not own credit cards, it is not for a lack of applying for credit,” the scoring firm said in a news release.
Millennials are actually more likely than baby boomers or Gen-Xers to apply for a new card, the study found. For example, 35 percent of the millennials included in the study applied for a new credit card, while just 28 percent of baby boomers and 29 percent of Gen Xers did the same.
A key difference: When millennials’ card requests are denied, many choose not to reapply for credit for up to a year or more, said ID Analytics. In addition, only 10 percent of millennials who have been turned down for a loan are willing to apply for credit again with the same lender.
Similarly, an April 2016 study by the credit rating agency TransUnion found that a substantial number of millennials – 32 percent – say they want to buy a home in the next year. However, many are thwarted from purchasing a home by insufficient credit scores.
According to TransUnion, 40 percent of millennials have a credit score that’s considered subprime, making it next to impossible for them to qualify for a mortgage or secure a low rate loan.
Millennials also are applying for car loans at higher rates, according to a May 2016 study by Lending Tree, indicating that millennials’ appetite for credit is increasing, despite holding relatively low levels of non-student loan-related debt.
For the youngest millennials, credit is becoming harder to get
Consumers in their early 20s are having an especially hard time these days qualifying for new cards.
As a result of the Credit CARD Act of 2009, would-be borrowers under the age of 21 can’t qualify for a new credit card unless he or she can prove they have sufficient independent income to repay their bills or if they can convince a more qualified borrower to co-sign for their card.
The CARD Act also cracked down on issuers’ ability to market to college students on campus or offer gifts in exchange for filling out an application, making students less likely to sign up for a card on a whim.
Now, some credit card issuers are making it even harder for would-be millennial borrowers to access a new credit card. In December 2016, Discover became the latest credit card issuer to announce that it would no longer allow people to co-sign for other people’s cards. Most other major card issuers, including Capital One, Chase and Citi, also bar student applicants from recruiting co-signers for their cards.
A tougher credit hurdle may turn off millennials
Experts say that a lack of access to credit at a young age could have long-term consequences for millennials who want to apply for more credit down the line. To qualify for credit, you need to prove that you can responsibly use it, which can feel like a tall order for consumers who have never borrowed in the first place.
For millennials who have struggled to qualify for credit in the past, passing that test and qualifying for a new card could feel like such an overwhelming hurdle that they don’t even bother to try.