Wednesday, December 17

Credit Cards are bad, right? with Spend It Like Beckham

Mid-twenties, first ‘real’ job and first ‘real’ flat: my transition into the financially self-sustainable adult I always told myself I was going to be is almost complete.

However, until recently, there was one financial obstacle I had yet to overcome: the credit card.

The fear was not plastic itself – I, alongside 50% of millennials today , have no qualms about using my debit card for next to every purchase I make; from extortionate flight tickets to a modest packet of chewing gum.

So, the question is; why aren’t we as relaxed with credit?

For the most part, front-row seats to the economic recession have instilled in Generation Y a fear of financial instability in the form of unemployment and thus an inability to pay off debt – the latter being a strongly-associated stigma of credit cards.

In light of this, millennials tend to choose debit cards as they operate effectively as cash, providing us with the security of using money we actually have in our bank accounts.

With our recovering economy in mind, it can be argued that we millennials are being financially savvy in our bid to stay out of debt by avoiding credit cards and other similar products. However, we have to ask ourselves; could this actually be at the expense of our own long term goals?

Using a credit card responsibly is one of the easiest and most reliable ways to build a strong credit history which, in turn, can be the catalyst of getting financial backing in the future. You need a strong credit rating to be approved for a mortgage, and further to this, a lot of providers won’t supply you with a secured personal loan if you’re not a homeowner.

Having a bad credit rating or not having one at all can limit you financially more than you might imagine.

Credit scoring, for those who are not familiar with the process, is where future lenders assess the manner in which you have borrowed and repaid money in the past in order to establish your creditworthiness. Without a credit history to evaluate, you will fall far short of being offered the better terms that are available.

Further to this, 15% of your credit rating will be based on the length of your credit history – therefore, if securing finance on a house or a car is a future goal, the optimum time for millennials to be choosing to use credit is now.

Recent Euromillions raffle winner Matt Myles learned this the hard way when he attempted to delve into the property market after returning from a six-figure ‘round-the-world pub crawl’. Despite winning a £1 million fortune, it has been impossible for Mr. Myles to obtain a mortgage due to his poor credit rating.

Using a credit card need not be daunting - by spending only small amounts and continuing to clear the balance on time you are able to avoid interest charges whilst establishing a formidable credit history of responsible borrowing. If you’re still feeling tentative about the prospect, some credit cards offer interest-free introductory phases, usually lasting a number of months while others honour their users with cash back rewards.

Our twenties are absolutely for living in the moment however, if you’re serious about your dream property or car at some point in the future then think credit before debit next time you swipe.

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