More debit cards and shorter credit histories explains millennials’ lagging credit card use
TransUnion said millennials – born between 1980 and 1994 – carry fewer cards and have lower card balances than Gen-Xers (born 1965-1979) did when the latter group was aged 21-34. Millennials also lag Gen-Xers in private label credit card (23 percent) and bank card (22 percent) participation. (TransUnion studied the two groups based on their ages as of the fourth quarter of 2014 for millennials and the fourth quarter of 2000 for Gen-Xers.)
Ezra Becker, senior vice president for global research and consulting at TransUnion, said the disparity can be explained by the comparative availability of credit cards and debit cards for both groups. He noted that the CARD Act of 2009 placed restrictions on credit card marketing on college campuses, just as many younger millennials were entering college.
Becker also pointed out that debit card transactions have increased by a factor of seven and a half over the past 15 years, compared to a doubling of credit card transactions.
“In terms of a purchasing tool, debit is as convenient as a credit card, and it doesn’t require a credit check,” Becker said.
But millennials have a much larger appetite than their older peers for personal loans, opening them at nearly double the rate. They also open auto loans at a slightly higher rate than Gen-Xers did during the same period in their lives. Becker said personal loans are popular among millennials because many financial technology companies have made the online loan application process smooth and seamless.
“Millennials are the first generation that has grown up fully immersed in the digital age,” he said. “Online applications are very natural for millennials and, frankly, it’s a baseline expectation. When they need liquidity, they may be going to fintechs and other consumer finance lenders because generally the underwriting is less onerous and less restrictive than traditional card lenders.”
However, millennials are opening mortgages at half the rate of Gen-Xers, underscoring a widely held theory that the former group is putting off big milestones such as homeownership.
Meanwhile, millennials’ comparatively tepid card use does not reflect an aversion to plastic, Becker said. Instead, the preference for high-credit-score customers among many issuers has kept a large swath of millennials out of the card market simply because they have thin credit profiles.
“There are a lot of millennials who are not ‘prime,’ not necessarily because they’ve made mistakes with credit, but simply because they need more time to build a credit history,” Becker said.