When Stephen Miles Till and Daniel Evan Garza started A Small Print Shop out of Till’s garage in 2010, the two bonded over their distrust of borrowed money. “We’re a cash business,” said 32-year-old Till as the two owners sat outside of the shop’s shared industrial space on 28th and Larimer streets. “We like looking in the bank account and knowing that money is real,” added Garza, 25.
Garza and Till are part of a growing number of people in their 20s and early 30s, who have eschewed credit cards for cash and debit cards in their personal and professional lives.
Data from the FICO Banking Analytics blog shows credit-card use has declined for consumers in all age groups since 2005, but the increase in the percent of consumers with no credit cards has been most dramatic for those ages 18-29. A recent Pew study of government data found that in 2010, only 39 percent of younger households (those under 35) carried a credit-card balance compared to 48 percent in 2007. The median outstanding amount owed among younger households with balances also dropped from $2,100 in 2007 to $1,700 in 2010.
A post from FICO data scientist Frederic Huynh on credit trends by age shows a bump in the percentage of people age 18-29 achieving higher credit scores by carrying less debt.
Huynh and other experts say the trend in younger consumers foregoing credit cards is a result of reforms in the industry through the 2009 CARD Act (such as disclosures of relationships between universities and credit-card companies, as well as bans on gifts like free T-shirts in exchange for applying for credit cards at university-sponsored events), a weak economy, larger student loans to pay off and stricter lenders.
Till explains that when his print shop added three more employees and an automatic press to increase production, it was difficult to qualify for even a minimum $10,000 line of credit from the bank, given his limited credit history. “When I applied for a credit card to run the business too, they gave me a whopping $2,500 limit,” he said.
Maclyn Clouse, a professor of finance at the University of Denver’s Daniels College of Business, says debit cards are a challenge for credit scores as they do not report to the major credit bureaus. “A debit card is purely a transactional instrument,” said Clouse. “That’s not establishing a credit history for you. The only way you’re going to get that good credit history is by having a real loan.”