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Young Consumers Kicking Credit Cards to the Curb [AUDIO]

Since the recession, the number of young consumers across the country who are living without credit cards has doubled. Instead, many are opting to use debit cards.

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That’s according to new research from credit score provider FICO, but it may not be the best move for those who are looking to establish credit.

The research shows about 16 percent of consumers from ages 18 to 29 didn’t have a single credit card by the end of 2012, up from eight percent in 2007. Many young consumers have watched their parents get hit hard by the recession, so they have shied away from credit.

At the same time, the CARD Act has made obtaining credit cards more difficult for young adults. The measure, which took effect in 2010, requires consumers under age 21 to have a co-signer or to make enough money to make full payments.

“I think the move toward debit cards for younger consumers is a good move from a standpoint of budgeting,” said Bruce McClary, Media Director of ClearPoint Credit Counseling Solutions. “I think debit cards can be a great tool for young consumers to learn about responsible budgeting and it helps keep their spending in check because they can only spend what they have as cash on hand. It forces them to live within their means.”

On the other hand, using debit cards keeps young consumers away from the world of traditional credit.

“When it comes time for them to borrow on their own, it may be a little harder because they haven’t taken steps early to establish a credit score and to build that credit history so that it can be easier for them to borrow later on. Some of that is beyond their control because of the CARD Act which restricts some from getting a credit card,” said McClary.

So, how is a young person to establish credit?

“Things are beginning to change in that area. Credit scoring models may begin to focus on non-traditional credit like how you pay your rent or your insurance bill. Until that is firmly in place, consumers are going to have to start the way they always have. But, if they go out and get a credit card after the age of 21, they may have to get one that doesn’t offer the best terms like a starter credit card or a secured credit card because they don’t have a score established,” said McClary. “Or, they can find someone who is willing to be a co-signer. Either way, the key is to use it responsibly and pay on time. That’s a key factor in establishing a credit score.”

It’s also important to graduate from that first product.

“As a consumer pays on time, their credit score goes up and makes them more credit-worthy,” said McClary. “After a year or so of using the card responsibly, it’s a good idea to start shopping around or see if you can find something with a better rate or see if that credit card issuer can lower your rate.”

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