Do You Really Need Credit?

When I was a youngster, my grandmother always insisted I clean my plate.  She grew up during the Great Depression and that shaped her views on savings, spending and waste for the rest of her life.  We are seeing a new generation who’s coming of age was shaped by what is now referred to as The Great Recession.  There is a growing trend among young people in this country to shun the use of credit cards.  They witnessed the destructive power of the overuse and misuse of credit by people, banks, and the government and many of them are actively choosing to avoid using credit.

According to a new article by MSN Money young Americans cut their credit card debt by nearly a third between the years of 2005 and 2012.  While debt declined among all age groups, no group came close to the reductions of the 18-29 year olds.  Additionally, those between 18 and 35 are three times more likely to use a debit card instead of a credit card than older Americans.

Some experts claim that this could have a backlash against this generation.  Because mortgage lending and auto lending are so heavily dependent on credit scoring systems, those who never actively participate in the credit market are finding themselves unable to qualify for home and car loans.  Pre-paid cards and debit cards offer no benefit to your FICO scores.

The MSN article also points out that while there are some loan products out there for people with no credit history, they are much more expensive than the programs available for those with even moderately good credit history.  So, while young people may be able to obtain funding when they need it, it will be much more expensive than had they wisely used credit cards to establish and build a good credit history.

So, do you need credit?  Perhaps so in today’s society, but there is hope that as this next generation matures and becomes more of an economic force that more lenders will adapt to their lifestyle, building more competitive products not dependent upon the Fair Isaac scoring regime.