Can you live a healthy financial life without credit cards?


Young people are swearing off the plastic.

A recent analysis of Federal Reserve data by the New York Times says that millennials, Americans’ youngest consumers, are less likely to carry credit card debt than at any time in the last 28 years.

There are many reasons for this shift. Thanks to regulatory crackdowns, cards are no longer being marketed aggressively to college students. Many millennials are already burdened by student loan debt, much more so than in previous generations. They may be leery of carrying debt due to having witnessed the financial crisis. And young people like to use new convenient ways to pay for everyday things, like online and mobile services such as Paypal and Venmo.

Carrying less, or no credit card debt has definite advantages. It’s the definition of living within your means. It imposes financial discipline, forcing you to save up for big purchases. Credit card interest rates are high, and that’s essentially throwing money away when you carry a balance month to month.

But there is a downside. Without credit cards, it can be harder and take much longer to build a good credit history. Historically, at least for the past few decades, middle-class households have built wealth and increased their productivity by purchasing big-ticket items such as cars and appliances on credit. And a sparse credit history affects your eligibility and the rates you’ll be offered for the biggest ticket item of all, a home mortgage.

To a surprising extent, Millennials may be passing on this whole financial game. For the first time in history, Pew reported this year, more people ages 18 to 34 are living with their parents than on their own with partners.

While most members of this generation say in surveys they would like to buy a home of their own, they are putting it off. And “insufficient credit” was the most commonly cited reason in a recent Fannie Mae survey.

In fact, according to financial website NerdWallet, a third of millennials have credit scores too low to qualify for most mortgages.

Although the data are not conclusive, young people seem to be waiting to buy cars as well.

There are two very different schools of thought about these emerging trends. One is that young people will remain at a financial disadvantage unless and until they follow the midcentury American playbook of accumulating major assets on credit.

The other is that this generation may represent a throwback to the days of their grandparents, who saved money, made purchases in cash and lived well within their means.

There may be a bit of truth to both views. There is no law that says economic security comes only with homeownership, and you don’t have to own a car either to prove that you have “made it.” Living in multigenerational households, with mortgages that may have been paid off years ago, can make a lot of financial sense both for parents and adult offspring, especially if the two generations help each other out with childcare and/or eldercare as well.

But if you aspire to homeownership, as most millennials say they do, it is possible to build up a better credit history without going recklessly into debt. Open a credit card account; if you can’t get one based on your own income history, try a secured card or getting added as an “authorized user” to the card of a spouse or relative with good credit. Then use it to pay a single recurring charge that is far below the allowable limit, such as your smartphone bill. Pay it off on time with a recurring automated transfer from your checking account and you’ll be building good credit without even thinking about it each month. You can also build credit through installment payments, such as at a furniture store, or by getting a personal loan through a credit union. It goes without saying that all these payments should be prompt and in full.

— Anya Kamenetz welcomes your questions at