What are the best credit cards for millennials? And are they different from the best credit cards for any other age group?
First, let’s define what a millennial is. According to the Pew Research Center, “Anyone born between 1981 and 1996 (ages 22 to 37 in 2019) will be considered a Millennial.”
That’s a wide age range. It groups those who are just graduating from college with those well-established in their careers, likely married and possibly the parents of elementary-schoolers. Could one credit card be right for both these demographics?
A Business Insider article points out that the oldest among the millennials entered the work world at the start of the Great Recession, and thus may have been financially (and personally) scarred from the experience of not being able to find the type of gainful employment they expected upon entering the workforce. Thus, they may be wary of using credit cards at all.
In the way that their grandparents, many of whom grew up during the great depression, may have re-used tin foil and hung up paper towels to dry and use again, this generation may tend to shy away from making purchases on credit even if they have a job now, out of fear that one wrong financial move may mean they may have to return to live in their parents’ basement again.
As they age, however, they cannot help but see the absence of credit cards leads to an absence of a credit history, which makes buying a house or getting an auto loan impossible.
If we operate under the assumption that this group, for the most part, eschews debt, the best credit cards for millennials are the ones that offer the most to those who pay the balance every month. For example, a credit card that offers 0 percent interest on balance transfers for six months would presumably not be that attractive to a millennial because they would not be looking to manage debt.
Qualifying for Credit
If you’re starting from zero, you might need to apply for a secured credit card. These cards provide a small line of credit — maybe $200 or $1,000 — but you must put up some money to secure the loan. In other words, if the bank extends $500 worth of credit to you, it may require you to put up $250-$500 to help ensure that when you charge goods and services to your card, you will pay for them.
Usually, this type of arrangement is best for those with bad credit. Whether due to divorce, unexpected medical bills, job loss or simply poor planning, some consumers find themselves unable to pay their bills and end up destroying their credit in the process. Few banks want to take a chance on these types of consumers. That’s why secured credit cards are beneficial for consumers in this group. Secured cards provide the opportunity to prove they can make purchases and pay the bill on time.
After a period of time, their credit report begins to show more on-time payments than late payments and defaults, and their credit improves.
Although you may have a “bad” credit score if you have never bought anything on credit, this is different from having a bad credit report. If you have not paid any bills late because you have never paid any bills, you might not be able to get a $20,000 car loan, but you could likely get a credit card, as long as you have a job.
In fact, if you recently turned 18 or are a college student, you could probably get an unsecured credit card even if you don’t have a job.
The Best Secured Credit Cards
The credit reporting agency Experian recommends 10 secured credit cards you can apply for. Each offers a different interest rate, ranging from 9.99% to an astronomical 25.99%. Some charge annual fees, some don’t. The highest fee is $49.
Predictably, the lowest interest rates come with the cards that charge higher fees. Logically, if you are a careful spender, you should choose the card with no fee. If you choose a card with an annual fee, you will have to pay it regardless of how — or if — you make your payments. High-interest rates only kick in if you are unable to pay your whole bill in full every month.
Experian’s list includes three fee-free credit cards:
- Discover it Secured
- The First Latitude MasterCard® Secured Credit Card
- Citi Secured Mastercard
Of the three that have no fees — Discover it Secured, The First Latitude MasterCard® Secured Credit Card and Citi Secured Mastercard — we prefer the Citi Secured Mastercard, not for its benefits, but because it has fewer disadvantages.
Discover, although it pays you cash back, is not accepted everywhere, and its users are often ridiculed as cheap. With an interest rate of 24.24%, the Citi Secured Mastercard has a slightly lower interest rate than The First Latitude MasterCard® Secured Credit Card (25.99%). However, Citi Secured Mastercard only works with those with good credit, while The First Latitude MasterCard® Secured Credit Card primarily works with those with bad credit.
A better bet is to try to get a parent or another relative with good credit to cosign for you, if possible.
The Best Credit Cards for Millennials
If you can qualify for a credit card on your own, Business Insider recommends the Chase Freedom Unlimited Visa card. It has no annual fee, plus it pays you 1.5% cash back on every purchase. The “on every purchase” part is key, as many credit cards offer you cash back on particular purchases like travel or dining out. And as a millennial, you may not do a lot of traveling or dining out. You want cash back on your Walmart purchases and quarterly trips to Hair Cuttery.
This card offers 0 percent interest for the first 15 months, which unless used with caution, can lead to financial problems in the future. You get used to carrying a balance and not worrying about it, then the interest rate increases to 20% (it’s actually a variable rate of 16.49%-25.24%) that could end up costing you a bundle.
The $150 signup bonus they offer if you charge $500 in the first three months isn’t quite as bad, as long as you use it to pay for things you would have bought anyway, like food and gas, and not to go on an Amazon shopping spree.
Credit Cards with Different Rewards
The Chase Sapphire Preferred and Chase Sapphire Reserve offer better rewards, but you have to be committed to playing the game. If this is your first credit card, start with the Chase Freedom Unlimited Visa.
With these Chase Sapphire Preferred cards, you can earn 2 points for every dollar spent on travel and dining and 1 point on all other purchases. So you’re automatically ahead, even if you eat out at McDonald’s and ride the bus to work, right?
Not really. The annual fee is $95, so you’ll have to calculate how much you think you’ll save and see if you’ll come out ahead. It does, however, offer travel perks like rental car insurance and extended warranties, if that’s something you would ever use or even care about.
The Chase Sapphire Reserve whacks you with a $450 annual fee. However, the first $300 that you spend on travel is credited back to you, so that brings it down to $150. This card offers you 3 points for every dollar spent on travel and dining and 1 point on everything else, plus a few travel perks.
Both cards offer sign up bonus points if you spend a certain amount in a specified time period, and you can reap greater rewards by spending your points on travel than exchanging them for cash.
But if you drive to work, park free, never Uber and don’t take out-of-town vacations because your student loans eat up all your earnings, this might be the best credit card for you.
The Best Credit Card for Millennials Is What’s Best for Each Individual
The bottom line is that credit cards are useful for a number of reasons — they can free you from having to carry a lot of cash, you can use them to shop online and rent cars — but your goal is to charge only what you can pay every month. If you do it any other way, you’re wasting money paying interest.
Credit cards can help you build credit, but you know yourself best. If you think a credit card in your hands would be the pathway to future problems, put off getting one, or at least get one with a low limit, so you don’t immediately immerse yourself in financial ruin.
The best credit cards for millennials are the ones with the most benefits and the least drawbacks. Look at each option carefully and consider your individual situation and preferences to make the best choice for you.