There are a lot of misconceptions floating around about Gen Z and their relationship with credit cards. As a generation that basically came into adulthood alongside the rise of BNPL (or ‘buy now, pay later’) services, Gen Z consumers were originally labelled as less likely to apply for their own credit cards. Cut to today, and a growing number of Gen Z consumers are actually in the market for a reliable credit card or two for their own personal spending.

And if you are a Gen Z reader who is currently looking to compare credit cards and set a course for your own credit spending, then this is the read for you. Today, we’ll be taking a closer look at the benefits that accompany credit card use and how Gen Z consumers can utilise this financial asset to build up their credit score.

Credit cards and credit scores

Before we jump into the ins and outs of credit cards, we first have to understand how your credit card activity impacts your personal credit score or rating. Unlike BNPL services which currently aren’t classified as a credit product (but are on the verge of being so), the way you use your credit cards can dictate the health of your credit score. This figure is then used by future lenders to determine your creditworthiness. In other words, cultivating a strong credit score now can help you qualify for larger loans in the future, making it easier for you to secure things like an auto loan or mortgage whenever you may need to.

And how are these scores calculated? In Australia, your credit report takes into account a variety of different factors, including:

  • Payment history
  • Types of credit accounts
  • The credit limits attached to those accounts
  • Credit applications
  • The length of your credit history

Your payment history makes up the lion’s share of these factors, as it encompasses all of your current debt (i.e. student loans, mortgage, car loans, credit cards, etc.) as well as your household bills, mobile phone plan, and even your monthly rental payments. Any records of missed repayments or overdue payments can negatively affect your credit score, which is why it’s imperative to pay your credit card bills, mobile plan, and other monthly payments on time, every time.

Just as timely payments can help grow your credit score, missed payments can hurt it. The extent of the impact that your credit card has on your personal credit score is entirely up to you. All in all, however, it is a lot better to actually be using financial services that have the potential to create positive change rather than simply using BNPL services that keep you at a neutral spot with regards to your credit score.

What are interest-free days?

One of the other main disadvantages of BNPL services like AfterPay is that they don’t provide as much flexibility when it comes to making repayments. Yes, paying for items purchased with a BNPL service allows consumers to split the total sale price into four interest-free instalments. And if you miss any of those four payments, you still don’t get charged interest on your overdue amount – just fixed late fees. Which can still add up if you miss payments repeatedly.

Contrastingly, credit cards typically come with a window of time where your payment doesn’t accrue any interest. These are your ‘interest-free days’. Interest-free days effectively allow you to make repayments at your own pace without having to worry about accruing interest until the end of your statement period. 

As you may have already guessed, your statement period is the span of time covered over a single credit card statement. As most statements are issued monthly, the majority of credit card users can enjoy a statement period of 28 days, give or take a few.

But there are some special offers on credit cards that allow cardholders to enjoy longer interest-free periods. For example, you could sign up for a credit card that offers 45, 55, or even upwards of 60 days interest free. This additional flexibility with your payment window can make a huge difference for those on a monthly salary, or perhaps even for single-income families who are juggling household bills with and other expenses between salary payments.

Just remember that your interest-free period is from statement to statement. So if you have an interest free offer for 45 days, your repayments aren’t due 45 days after every purchase, but 45 days after your last statement. In other words, making a purchase 20 days after your statement with a 45-day interest-free period means you’ll only be able to enjoy 25 days of no interest on that purchase. With this in mind, it’s best to make larger purchases as soon as your next monthly statement comes in, just so you can enjoy your interest-free period in full.

How to read credit card statements

Arguably, the best way to use your credit card is to think of it as spending your own money rather than somebody else’s. Maintaining total ownership of your credit account can help you better manage your credit spending and reduce your risks of unnecessarily accruing credit card debt. 

Keeping track of your interest-free periods and the payments that you make over the course of any given credit card statement, can help you maintain total control over your card usage. But maintaining vigilance offers so many more benefits than just curbing unnecessary spending. Staying on top of your credit card statements every month can also help drastically reduce your risks of falling victim to credit card fraud or any errors that may appear in your transaction history.

And understanding your credit card statement is a lot easier than you may think too. Virtually all credit card statements in Australia are laid out the same way: with your statement period in the lop left hand corner, followed by your total credit balance, the minimum payment amount due with that statement, the available credit (or what’s remaining of your overall credit limit), and your total interest paid over that year.

Being aware of these figures and reading over your transaction history with every statement is a foundational part of maintaining sustainable credit spending habits.

Spending with your credit card does require a fair amount of strategy. From taking advantage of credit card offers and rewards programmes, to making the absolute most of your interest-free periods, there are an abundance of ways that Gen Z consumers can make their credit cards work harder for them. But as we’ve mentioned throughout this guide, using your credit card effectively also requires that you know how they work. This means knowing how they can help build your creditworthiness, alongside knowing how they can hinder you from cultivating a strong credit score.

So long as you keep all the above points in mind and maintain healthy spending habits with your credit card, there’s no reason why your card shouldn’t be a financial asset for you.

Image: Supplied.

This is a sponsored article produced in partnership with Digital Next.

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