Editorial Policy

Young People Saying “No thanks” to Credit

Kristin McGrath

March 21, 2013

A couple weeks ago, I was talking with a friend about his apartment hunt.

“So many places do credit checks now,” he said, lamenting the fact that he’d probably have to offer several months’ rent up front to get around it, as he has a very thin credit history.

The personal finance website editor in me kicked in, and I suggested he get a credit card — maybe a secured card, if he couldn’t get a regular one. That way, he’d have a credit history by the next time he needed a new place.

“But I don’t want to have to go into debt and pay interest,” he argued.

I explained he wouldn’t have to; he could avoid debt and interest entirely by charging a few items a month and then paying off the balance before the due date.

“Yeah, well, it’s the temptation, mostly,” he admitted.  “I don’t want to end up like my parents.”

My friend is far from alone in his attitude toward credit. According to this March 18, 2013, Bloomberg article, many young people see credit only as a liability — not as a useful tool that can help their financial futures. Spooked by the recession (and, possibly, their parents’ debt mistakes), young people are avoiding plastic, as well as other forms of credit, such as mortgages.

The article cites this February 2013 Pew Research report, which tracked the credit behaviors of those under 35. Unlike their older counterparts, the under-35 crowd’s use of personal loans, mortgages, vehicle loans and credit cards has decreased since 2001 — with the biggest drop occurring after the recession that began in 2007.

The only type of credit young people are using more frequently are student loans — as of 2010, according to the Pew report, they were four times as likely as the over-35 crowd to carry student loan debt. Timely student loan payments are a good thing when it comes to credit history, the Bloomberg article points out. However, if student loans are the only type of credit being used, they’re not likely to help much: Student loans often mean big debt balances, and, without timely payments on, say, a credit card account, lenders will still likely say, “No.”

What this all boils down to is a generation that traditional credit reporting can’t get a read on. That could shut younger people out of owning homes and, as my friend found out, make it harder to get an apartment. While no access to credit is inconvenient for young people, it could have an even greater impact beyond their own lives: Increased home ownership and other big purchases could help fuel an economic comeback, while growing numbers of credit-free consumers could stall economic progress.

As a member of the under-35 crowd, I can understand that fear of debt and credit. Luckily, my dad was willing to act as co-signer on a credit card account in my name when I turned 18. I make purchases on that account every month and pay them off early — and, over 10 years, I’ve created a healthy credit history that I’m grateful for. It’s helped me land an apartment at a time when I had no income and decreased the security deposits I’ve had to pay. There have been many times over the years that I’ve said a silent “thank you” to my father and the credit gods.

I never did convince my friend to get a credit card — and I’d never try to strong-arm someone into getting a financial product they’re not comfortable with. Yet I’m troubled by my peers’ credit avoidance. I’d like to hear some feedback from those of you who live credit-free. Tell me in the comments why living without credit works for you. Has it ever held you back from getting something you’ve wanted?

Whatever your financial values are, our weekly blog roundup is sure to have something that inspires you. Here are our favorite blog posts of the week:

Holly from Club Thrifty explains why she could never be an “extreme” cheapskate.

One Smart Dollar asks if loans among family members are worth it.

Making Sense of Cents explains why those who make more often spend more, rather than save more.

Jana from Daily Money Shot has decided to go on a spending freeze.

Master the Art of Saving demonstrates how you can use bi-weekly paychecks to get ahead on your bills.

Justin from The Frugal Path wonders if he and his wife can afford to have a baby.