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Millennials aren't using credit cards, and it might come back to haunt them

If you're a Millennial who loves her credit card, you may be in the minority.
If you're a Millennial who loves her credit card, you may be in the minority.
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Millennials are different from other adults: they're selfie-obsessed, they don't drive, they're married to their phones, and they're godless. Also, they just don't like credit cards much.

A new study from Bankrate.com finds that 63 percent of Millennials — defined here as people age 18 to 29 — have no credit cards. By comparison, only 35 percent of people 30 and over have no cards. That might be responsible now, but it could mean problems down the road.

There are a few reasons why youngsters might be giving up on credit cards, Bankrate finds: new rules make it tougher for the youngest borrowers (people under 21) to open cards, meaning it's harder to introduce an 18-year-old to credit card use. In addition, Americans in general have dialed back their credit card use.

But it's also that Millennials choose to pay in other ways. A recent study from Credit Cards.com found that young adults choose debit cards to credit cards by a margin of two to one. More importantly, that may be because they are paying attention to their other big balances. As a New York Fed study found earlier this year, there is evidence that people with high levels of student debt cut back on their other debts, including credit card debt, between 2005 and 2012.

It may be a good thing that Millennials have so few cards. Bankrate finds that Millennials are far more likely to miss payments than other age groups, and they're less likely than any other age group to pay off their balance in full each month.

The problem is that Millennials who don't get credit cards can't build a credit history. That will make it harder to make other financial steps in the future — most notably, building wealth by buying a house. Before making big home loans, banks want to see that potential homebuyers have histories of borrowing and paying back money on time. No history can signal to a bank that the wannabe borrower is a gamble … even if that potential borrower is in fact super-responsible.

Despite borrowing less than they used to, Millennials also have a much tougher time paying down their balances than older borrowers, as the Wall Street Journal's Neil Shah reported last year. And because they have shorter credit histories and fewer assets, that naturally leads to lower credit scores. But not using credit cards can exacerbate that.

All of this points to a flaw in our current credit system: people who may well be avoiding credit cards in order to be financially smart are also encouraged to take on those cards they don't want in order to get ahead financially in the future as well.

The plus side, writes Bankrate, is that the sea change in Millennials' attitudes might force credit reporting agencies to change how they rate people.

"[A] widespread rejection of traditional credit sources, like cards, could force the bureaus and their lender patrons to look at alternative data for determining a customer's ability to repay," writes Bankrate's Jeanine Skowronski.

The credit reporting industry has already started paying attention. In August, FICO reported it was making big changes to its scoring procedures. Though headlines focused on the company's decision to treat medical debt differently, FICO also said it was finding better ways to assess people with small credit histories — so-called "thin-file" consumers.