Death of the credit card? Young people shunning credit cards for one reason

Almost half of under 35s don’t own a credit card according to new research. So are young people making a mistake by staying clear of plastic?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman looking sideways at credit card

Source: Getty images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

New research reveals credit card usage is declining among young people. Nowadays, almost half of those aged under 35 don’t own one.

So, why is this? And are young people missing a trick by staying clear of credit cards? Let’s take a look.


Credit card usage: what the data tells us?

According to GlobalData, 47% of under 35s don’t own a credit card. This compares to just 39% reported in 2016. This tells us that credit card usage is clearly declining among young people. This trend has been partly down to the growth of Buy Now Pay Later (BNPL).

As Jaimini Pattani, banking analyst at GlobalData, explains: “Not only are alternative financing options such as BNPL increasingly offered on social media, where younger people shop, they also make purchasing on credit easier.

“BNPL is allowing buyers to simply view credit options at the point of making a large purchase, rather than having to apply for a credit card at the bank. Further, BNPL services offer interest-free purchases, have softer credit checks and are often manageable via apps.”

Interestingly, GlobalData also highlights that 93% of millennials without a credit card say they have no intention of ever getting one.

Why are young people shunning credit cards?

As suggested by Jaimini Pattani, the rise of BNPL is a big reason why young people are shunning credit cards.

BNPL offers an easy way to borrow money for purchases and doesn’t require a ‘hard’ credit check. Furthermore, many BNPL providers don’t charge users any interest or fees. 

In contrast, credit cards have a bad reputation for charging users sky-high interest. Some of the worst culprits have interest rates close to 40%! Credit cards, if used incorrectly, can also mark your credit file and charge you additional fees for missing repayments.

While repayment behaviour on BNPL doesn’t currently impact your credit score, one credit rating agency will soon begin to take BNPL repayments into account. As a result, the benefit of opting for BNPL over a 0% credit card may soon wane for some. 


Are young people making a mistake by avoiding credit cards?

Here are four reasons why young people may be making a mistake by avoiding credit cards.

1. They can boost your credit score

While one credit rating agency will soon take BNPL repayments into account when calculating your credit score, the UK’s three other rating agencies have not yet indicated whether they’ll follow suit. This means most BNPL schemes won’t help to boost your score, even if used responsibly.

In contrast, any credit card can help to boost your credit score, as long as you make repayments on time and stay within your credit limit. If your credit score isn’t great, then a credit card for bad credit can help.

2. You can borrow at 0% (and spend at any retailer)

If you’re looking to borrow, 0% purchase credit cards can give you a long interest-free period on your spending. So rather than being restricted to one particular retailer (as is often the case with BNPL), a 0% credit card will, within reason, offer you full flexibility on where you can spend.

Right now, you can get 23 interest-free months with the M&S Shopping Plus card, which is the longest guaranteed 0% period available. Plus, you’ll also get £25 cashback if you spend £100+ on the card within 90 days (21.9% rep APR). See our top-rated 0% purchase credit cards for more options.

If you are accepted for a long 0% deal, remember to always make at least the minimum monthly payment and clear your card in full before the interest-free period ends.

3. Some cards will reward you for using them

Even if you aren’t looking to borrow or boost your credit score, did you know that some credit cards will reward you for spending on them? 

For example, some cards offer points or cashback every time you use them. So, as long as you pay off your balance each month and stay within your limit, you can profit! 

The fee-free Amex Platinum Everyday is one of The Motley Fool’s top picks for cashback. The card pays 5% introductory cashback on spending, and then up to 1% after (24.5% rep APR). See our list of top-rated reward credit cards and top-rated cashback credit cards for more options.

4. Credit cards give valuable consumer protection

Spend between £100 and £30,000 on a credit card and Section 75 of the Consumer Credit Act applies to your purchase. This is valuable consumer protection as it makes your credit card provider equally liable should anything go wrong.

When should plastic be avoided?

While getting a credit card offers clear benefits, it can be very harmful to your finances if used incorrectly.

If you lack the discipline to repay your balance on time or you fear you’d use a credit card as an excuse to overspend, then it’s best to avoid getting one.

For more tips, see our guide to how credit cards work.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »