The best credit card for millennials, based on their spending habits, rewards, and benefits
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- Using credit cards is actually really important for your overall financial health.
- Although millennials have been avoiding credit cards, signs suggest that this may be changing.
- Here are the best credit cards for millennials to use, based on spending habits, rewards, and benefits.
- The Chase Freedom Unlimited, the Chase Sapphire Preferred, and the Chase Sapphire Reserve are among the best options.
Millennials. I hear that we're just the worst. After all, it seems like we've killed just about every industry, business, and product, from Applebees to paper napkins.
Naturally, credit cards are no exception, and it makes sense. Millennials came of age during the worst financial crisis since the Great Depression, and a new report suggested that the older range of millennials - those born between 1981-1989 - may never fully recover from the damage of the "Great Recession." With that kind of trauma, it's natural for the worst-affected generation to be wary of financial products.
However, that may be changing, according to data from Aite Group reported by CreditCards.com. Millennials are becoming more open to cards, prompted partly by economic growth, partly by lucrative rewards, and partly by the fact that as they get older, the importance of building credit becomes plainer.
The fact is, the responsible use of credit cards is an essential part of establishing a healthy credit history, which is vital for securing major consumer loans and mortgages. As millennials mature and embrace responsible use of loans to purchase cars, homes, appliances, and things like engagement rings, credit cards become not only less intimidating, but also more important.
For millennials who are seeking to avoid mounting credit card debt, the key is to simply use them exactly like debit cards. Practicing healthy financial habits, not spending more than you can afford, and paying off your cards in full each month - or even each paycheck - helps you avoid debt, interest fees, and anything else negative.
If you're a millennial who's looking for the best possible credit card, here are our recommendations.
Keep in mind that these are based on the assumption that you're paying off your cards in full and not carrying a balance. We're looking at things like benefits, rewards, and perks, not interest rates and late fees, which far outweigh the value of any rewards.
For the millennial without any credit history
If you have absolutely no credit history - meaning that you've never had a student credit card, you've never been an authorized user on a parent or family member's account, and you don't have much (or any) of a history paying student loans on time, you'll need to get a secured credit card to start out.
A secured credit card is one where you put down a deposit - for example, $200 - and then you get a card with a credit limit of the same amount. You can pay the card on time and prove that you're responsible, and eventually upgrade it to an unsecured credit card and get your deposit back.
You can usually get a secured card from the primary bank you use for your checking account. Alternatively, Discover offers a solid option that even earns cash back.
For the millennial looking for a first "real" credit card
If you're looking for your first "real" credit card, besides maybe a card that's tied to your parent's account, or even a student card with a low credit limit, the Chase Freedom Unlimited is an ideal option.
The card earns unlimited 1.5% cash back on all purchases, and has no annual fee. Plus, it features an introductory 0% APR for the first 15 months, so if you want to break the rule and carry a balance for a few months (for instance, if you need to replace an aging laptop but it's a bit too pricey right now) without paying interest, this provides a great opportunity (after the introductory APR offer, a variable APR of 16.74%-25.49% applies - so you should definitely make sure to pay off the balance by then).
The card also offers a sign-up bonus of $150 when you spend $500 in the first three months.
You can read more about the card here, and see how I've previously taken advantage of the 0% APR offer.
While there are a few cards out there that offer 2% cash back, the real appeal of the Freedom Unlimited is that while the card is marketed as "cash back," it actually earns Chase's proprietary Ultimate Rewards (UR) points that you can redeem for cash (1 point = $0.01). When you're ready to upgrade to a card that earns better rewards, you can pool your points from the two cards, and get a bonus when purchasing travel, or transfer them to travel partners.
For the millennial looking for better rewards
That's because both cards earn bonus points on all travel and dining purchases. Both categories are defined broadly; travel includes taxis, Uber/Lyft, parking, subways, commuter rail, tolls, flights, hotels, Airbnb, and more, while dining includes bars, restaurants, fast food, takeout, delivery services like Seamless and Grub Hub, coffee shops, bakeries, and more. As a millennial, much of my disposable spending falls into the dining or travel category, and data suggest that I'm typical of my generation.
The two cards are similar, but have key differences:
- The Chase Sapphire Preferred has a $95 annual fee, waived the first year. It earns 2x points per dollar spent on just about all travel and dining purchases, and 1x point on everything else. It also comes with a ton of travel and purchase protections, such as rental car insurance, trip delay coverage, and extended warranty.
- The Chase Sapphire Reserve has high $450 annual fee, but the rewards and benefits more than make up for it. You'll automatically get statement credits rebating your first $300 in travel category spending each year. So in effect, the annual fee is only $150. Plus, the card earns points on everyday spending faster, with 3x points per dollar spent on travel and dining purchases, and 1x on everything else. It also offers similar, though in many cases, enhanced travel and purchase protections. Unlike the Preferred, the Sapphire Reserve comes with a Priority Pass Select membership, which gets you and any travel companions free access to more than 1,000 airport lounges around the world.
With both cards, you can exchange points for cash back. However, if you book travel through the Chase Ultimate Rewards portal and use points to pay, you'll get a bonus - 25% with the Preferred, and 50% with the Reserve. That means points from the Preferred are worth 1.25 cents each toward travel, and points from the Reserve are worth 1.5 cents each.
Even more lucrative - both cards let you transfer your UR points to a few different frequent flyer and hotel loyalty programs. This comes in handy because, in many cases, it costs fewer points to book a trip if you go through one of those programs, as opposed to using the points as cash. You can read more about why transferring points to frequent flyer programs gets you more value here.
Both cards come with the same sign-up bonus: 50,000 UR points when you spend $4,000 in the first three months, so it's best to open one of them when you have some planned (and budgeted) big expenses coming up.
If you're not sure whether the Preferred or Reserve is the better card for you, take a look at this breakdown. Also keep in mind that you can typically only earn the sign-up bonus for one Sapphire-branded card every two years.
Credit cards are an important part of your overall financial health, and when you use them responsibly, it's easy to make them work for you. The Chase Freedom Unlimited and Sapphire cards are among the best options for millennials seeking to establish a credit history and earn better rewards.
Click here to learn more about the Chase Freedom Unlimited card from Insider Picks' partner The Points Guy.
Click here to learn more about the Chase Sapphire Preferred card from Insider Picks' partner The Points Guy.
Click here to learn more about the Chase Sapphire Reserve card from Insider Picks' partner The Points Guy.
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