Boston Fed Researchers: CARD Act Limited Young Adults’ Ability to Build Credit

The 2009 Credit CARD Act may have hindered young adults’ ability to build credit histories, according to a new paper released by the Federal Reserve Bank of Boston.

“[W]e document that there are indeed fewer young adults in credit bureau data since the implementation of the CARD Act,” the researchers wrote, adding that “more limited credit availability for young adults may have contributed to the slower-than-anticipated recovery in consumption growth following the Great Recession.”

The average credit score among 20-year-olds increased by nearly 20 points from 2006 to 2018, while the average for older cohorts remained steady, suggesting that credit was going to the most creditworthy young adults or those with co-signers. Meanwhile, individuals affected by the CARD Act opened their first credit account 6.4 months later than those old enough not to be affected by it, “possibly delaying access to credit.”

With credit cards one of the earliest triggers for the creation of consumer credit records—and thus a credit history—the researchers also found that by limiting credit card availability “the CARD Act likely has had a disproportionate effect on credit access for young individuals of less privileged backgrounds.” Among many significant changes that the CARD Act made to U.S. credit card regulations, it required an adult under 21 to have a co-signer or to submit documents verifying ability to pay, as well as limiting the marketing of credit cards on college campuses.