A new study on the credit card behavior of young adults suggests that a provision in the Credit Card Accountability, Responsibility and Disclosure Act of 2009 -- intended to keep many people under 21 years of age from getting a credit card -- was misguided and unnecessary. “We find no compelling evidence that young borrowers are bad borrowers,” says Andra Ghent, an assistant professor at the W.P. Carey School of Business at Arizona State University. She is a co-author of the research report, which refutes the idea that, during the recession in 2008 and 2009, college-aged people were reckless spenders who took on too much credit card debt. Under the Card Act, lenders cannot issue cards to people under 21 without a co-signor or proof that they have “independent means” to pay their own bills. There has been an 18 percent decline in the number of consumers under age 21 who have credit cards, as a result.
Ghent’s research found that people who got credit cards when they were younger, even at age 18, were better long-term credit risks -- possibly because they may learn tougher lessons sooner. Some evidence suggests that young cardholders are more likely to miss payments for 30 or 60 days; but that is not the case for more serious defaults of 90 days or more. People ages 35-44 are 10 percent more likely than 18-to-20-year-olds to have a serious default. The research suggests that the longer people are restricted from using credit, the longer they take to make big-ticket purchases like homes and autos -- which in turn can stall household formation, a key economic factor.