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CARD Act Reduced Use of Credit Cards by Young People, But Potentially Led to Lower Credit Scores

By Wisconsin School of Business

March 15, 2017

Wisconsin School of Business research shows those getting cards before turning 21 are less likely to have a serious default and have higher credit scores later in life

In 2009, Congress passed the Card Accountability Responsibility and Disclosure Act (CARD Act) to overhaul consumer protections in the credit card industry, limiting the fees lenders can charge, preventing frequent changes in interest rates, and making billing more transparent. A key provision of the law, known as Title 3, limits the ability of young people under the age of 21 to get credit cards and forbids lenders from aggressive solicitations aimed at the youth market.

New research from the Wisconsin School of Business at the University of Wisconsin–Madison reveals that while the CARD Act has been successful in limiting the use of credit cards by young people, curbing their early access to credit could have unintended consequences. Andra Ghent, associate professor of real estate and urban economics at the Wisconsin School of Business, together with Peter Debbaut of North Carolina State University and Marianna Kudlyak of the Federal Reserve Bank of San Francisco, found that:

  • since passage of the CARD Act, those under the age of 21 are 15% less likely to have a credit card;
  • those who get a credit card early in life are less likely to have a serious default in the future and have higher credit scores later in life than those who get cards later; and
  • parents of individuals who have a credit card by the age of 21 are less likely to be in serious default and are less credit constrained.

“We know the CARD Act reduced the use of credit cards by young people, but the public policy benefits of that change are less clear,” said Ghent of the Wisconsin School of Business. “Our research found a positive association between having a credit card early in life and credit scores later in life.”

Ghent added, “If blocking access to credit markets raises the cost of credit for young people as they get older, consumer protection policy should consider those costs along with the potential benefits of curbing aggressive marketing practices that target youths.”

After passage of the CARD Act, young people under the age of 21 who did have a credit card were likely to have fewer credit cards and were 35% more likely to have a cosigned card.

The researchers also found that a delay of three years in entering the credit market results in a credit score that is approximately 20 points lower.

Ghent said that a delay in building credit scores can have a significant impact for consumers when it comes time to borrow money for a buying a home, for example. According to data from, someone with a mortgage of $165,000 who had that extra three years in the credit market could save $150 a year or more than $1,000 over the typical number of years most borrowers stay in the same mortgage.

The study reviewed data from the New York Federal Reserve Bank Consumer Credit Panel/Equifax (CCP), a nationally representative data set that contains detailed records of individual debt and borrowing on a quarterly basis going back to 1999. The CCP data also contains information on individuals who reside at the same address.

The paper, “The CARD Act and Young Borrowers: The Effects and the Affected”, was published in the Journal of Money, Credit and Banking.