Gen Z is signing up for credit cards faster than any generation: 3 tips they should know

Many banks were forced to tighten their lending requirements at the height of the pandemic, and that included cutting back on approving consumers for new credit cards. But a year later much has changed: Credit card originations have nearly doubled to record levels, increasing from 8.6 million in Q2 2020 to 19.3 million in Q2 2021, according to credit bureau TransUnion's Q3 2021 Quarterly Credit Industry Insights Report (CIIR).

The report also found that the youngest generation of consumers, Gen Z, is driving this credit card industry rebound with the biggest jump in credit card originations.

"As many of these consumers come of age, they are finding they have a need for products such as credit cards," says Paul Siegfried, SVP and credit card business leader at TransUnion. "Some of this growth is natural aging of the generation as more consumers enter it, but also too many of these consumers are engaging back in the economy and using credit products to do so."

Getting your first credit card is a crucial step in your financial journey because it means you're starting to build credit. It's important, however, that you treat this move with as much care and consideration as you would with any other financial decision you make. First-time credit cardholders should know what they are signing up for and how using a credit card can help or harm their finances.

Below, Leslie Tayne, a debt-relief attorney at Tayne Law Group, shares three tips Gen Z consumers should know when opening a new credit card account.

Credit cards offer all different types of rewards, which is a huge perk of using one as opposed to solely relying on a debit card. Credit card users can earn cash back or score points and miles every time they make a purchase with their card. While all of this may sound exciting, some rewards programs may be better suited for you than others.

For instance, if you don't travel often, it doesn't make sense to get a credit card that lets you earn miles with your spending. Instead, you may want to opt for a cash-back card or one that offers points for your purchases (just make sure you understand how to redeem them).

You'll find that many of the best rewards credit cards require having good or excellent credit, which young consumers traditionally don't since they are just starting out. A good starter card for those with only average credit is the Capital One QuicksilverOne Cash Rewards Credit Card (see rates and fees), which offers a flat-rate 1.5% cash back on all your purchases.

And if you're a student, Tayne recommends considering student credit cards. "The rewards and benefits offered on student cards can be excellent and comparable to standard credit cards," she adds.

The Discover it® Student Cash Back has no annual fee and offers college students enrolled in a two- or four-year college the chance to build credit, while earning rewards. You must be over 18 and a U.S. citizen to apply. Cardholders can enroll every quarter to earn 5% cash back on rotating categories up to a $1,500 maximum each quarter (then 1%). All other purchases earn unlimited 1% cash back automatically.

As someone who is just discovering the world of credit, Tayne suggests that young consumers carefully review all of the fine print for the card they're thinking of signing up for.

"At a minimum, they need to know the interest rate and the fee structure," Tayne says. "That way, they understand how much using the card could cost them."

All credit cards will have a "pricing and terms" page online that lists fee information, so you can look there before you apply for the card. You'll find the interest rate expressed as the term annual percentage rate, or APR. Card issuers charge interest if you carry a balance month to month, so pay your balance off in full (and on time) each billing cycle to avoid accruing any interest at all.

And if you're worried about paying your credit card bill on time, consider a credit card with no late fees, such as the Citi Simplicity® Card (see rates and fees), the Apple Card or the Petal® 2 "Cash Back, No Fees" Visa® Credit Card.

Tayne points out that many Gen Z consumers may be using credit cards to finance post-pandemic celebrations, like purchasing event tickets and booking travel. But young consumers especially should sign up for their first credit card with one goal in mind: build credit.

The earlier you start building a credit history, the better for your credit score in the long run. And a good credit score goes far. It can help you secure financing in the future, such as a car loan and eventually a mortgage.

As you get older, you can sign up for credit cards to have a bit more fun, like scoring a sizable welcome bonus, but your first credit card should be used as a tool to kickstart your credit journey. For that reason, use some of the below tips from Tayne so you instill good habits early on:

• Spend within your budget so you can pay off your card every month: This way, you won't rack up debt and can avoid paying high, double-digit interest rates.
• Keep tabs on your credit report and credit score: Your credit score will provide a quick overview of how you're doing financially and your credit report can help you spot potentially fraudulent activity, like credit accounts opened in your name.
• Manage your credit card responsibly for the long haul: The longer your credit history, the better your credit score.

Kudos to you if you are thinking about signing up for your first credit card. Since this card holds a lot of importance in your current and future financial health, make sure you take the time to choose the right rewards program for you, review the fine print (ahem, fees) and aim to build credit from the get-go.

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For rates and fees of the Discover it® Student Cash Back, click here.

Petal 2 Visa Credit Card issued by WebBank.