Credit cards are becoming an emergency cushion: Cynthia Chen, CEO and founder of Kikoff, says some younger consumers are using available credit to fill the role normally played by savings.
Three mistakes stand out: High credit utilization, making only minimum payments, and missing payments can all create problems.
Know when you'll pay it off: Chen says if you can't name the month you'll have a purchase paid off, that's a sign you're spending too much.
With the holidays approaching and credit cards about to get another workout, I wanted to know what younger consumers should be especially careful about as they open new cards at a rate faster than any other age group.
So I asked Cynthia Chen, CEO and founder of the credit-building platform Kikoff, what she's seeing among Gen Z consumers and which credit card mistakes concern her most.
One of her answers stood out.
For a lot of young consumers, a credit card isn't really functioning as a payment tool anymore. It's becoming a substitute for emergency savings they haven't been able to build, Chen told ConsumerAffairs.
Rising costs, entry-level wages, and juggling multiple bills can leave younger consumers with little room to absorb an unexpected expense.
Opening another credit card isn't automatically a mistake, either. Chen pointed out that additional available credit can actually lower your credit utilization, assuming you don't spend into the new limit.
But she says opening another card becomes a bad idea in three situations: when you're using it to cover a financial shortfall, when you're already carrying balances on other cards, or when you're within six to 12 months of applying for a mortgage or auto loan.
I also asked Chen about the biggest credit card mistakes she's seeing among Gen Z. Three stood out.
1. Running up your credit utilization
Credit utilization is the percentage of your available revolving credit you're currently using.
Chen says Gen Z cardholders average around 44% utilization, compared with 35.5% nationally. That's important because amounts owed account for 30% of a FICO score, making it the second-largest factor after payment history, according to Chen.
And simply opening another card isn't necessarily a solution. If the additional credit limit encourages you to spend more, you haven't fixed the underlying problem.
2. Paying only the minimum
This one can be deceptive because technically you're doing what the credit card company requires.
But Chen says making only the minimum payment can leave you treading water. Your account stays current, but the balance barely moves while interest continues accumulating.
That's particularly important heading into the holidays, when gifts, travel, and other seasonal expenses can easily get added to balances you're already carrying.
3. Missing a payment entirely
Chen's third warning is perhaps the simplest: Don't miss a payment.
Payment history accounts for 35% of a FICO score, Chen says, making it the single biggest factor.
Her advice is to put at least the minimum payment on autopay. That way, even if you forget the due date, you've got some protection against accidentally missing the payment altogether.
If you've already missed one, Chen recommends contacting the card issuer and asking for a goodwill adjustment, particularly if it's your first late payment.
A simple test before putting Christmas on a credit card
I also asked Chen what consumers should do if they don't have enough cash to cover their holiday spending and are considering putting it on a credit card.
Her advice was refreshingly simple.
Know your interest rate and have a repayment plan before you spend. And don't borrow more than you can realistically clear within two or three billing cycles.
Chen offered an especially useful test: If you can't name the exact month you'll have the purchase paid off, it's probably too big.
That's worth remembering when you're standing at the register in December. What might feel manageable during the holidays can quickly turn into months of catching up once the credit card bill shows up in January.