Credit Building Must Be Democratized For Younger Generations

In the wake of the 2009 Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, college students found themselves in a peculiar financial predicament. 

While the intention behind the Act was good—protecting young adults from predatory lending practices and mounting credit card debt—it inadvertently created a significant barrier for students seeking to build credit histories. 

This legislative change, coupled with the already challenging landscape of student loans and financial literacy, left an entire generation struggling to establish the credit foundations necessary for their future financial health.

In short, the whole thing turned out to be a double-edged sword because the restrictions were substantial. It prohibited credit card companies from offering tangible items to incentivize college students to apply for cards, required cosigners for applicants under 21, and mandated parental approval for credit limit increases. 

These measures effectively curbed the rampant credit card marketing on campuses that had led to students graduating with unmanageable debt. However, they also made it significantly more difficult for young adults to access traditional credit-building tools.

Generational Impact

The CARD Act of 2009 reshaped how college students interact with credit, for  worse. The numbers tell the story: college-affiliated card agreements nosedived from over 1,000 in 2009 to a mere 272 by 2014. 

As a result, card issuers, seeing the writing on the wall, pivoted to courting alumni instead of current students. But this credit vacuum didn’t go unfilled for long. New options sprouted up to help students dip their toes into the credit pool. Secured cards, requiring an illiquid security deposit, became a popular first step. Some issuers crafted student-specific cards with training wheels – lower limits and gentler interest rates. Tech-savvy startups jumped in too, offering credit-building through micro-loans and secured credit lines.

But building credit remains an uphill battle for many young adults. Gen Z’s average credit score, when it exists, lags at 681, and student loans still loom large, with the average Gen Z borrower shouldering nearly $23,000 in education debt—debt that will be harder to refinance in the absence of good credit.

Clearly these options weren’t enough. Today we have a generation that is fearful of incurring debt and therefore puts off major life milestones. This debt avoidance is delaying home purchases and apartment rentals, preventing graduates from starting businesses, and even blocking the path to higher education for many.

Recent data shows 16% of young adults (18-24) with credit records have debt in collections, and 33% lack confidence in their ability to cover a $400 emergency. This financial insecurity is reshaping priorities, with Gen Z favoring stability over traditional adult milestones.

Sure, this may shield them from excessive debt, but it risks stunting long-term financial growth and asset accumulation. Personal leverage can be an economic superpower to help young people achieve financial independence, as long as they are taught how to properly wield it. 

If there’s one takeaway from these statistics is that Gen Z needs financial education as much as they need more innovative options.

Learning To Building Credit Without the Risk

There are a few low-risk options GenZ’ers can explore to build credit:

• Secured Credit Cards: These require a cash deposit as collateral, limiting potential debt while building credit history. Funds deposited for a secured card aren’t available to be used for spending, which is an important consideration.

• Credit-Builder Loans: Offered by some financial institutions, these loans are designed specifically for credit rebuilding rather than establishment, with the borrowed amount held until fully repaid. 

• Authorized User Status: Young adults can benefit from a family member’s positive credit history by becoming an authorized user on their credit card. While authorized usership doesn’t convey the full fledged benefits of independent credit building, it can be a great way to get started.

• Rent and Utility Payment Reporting: Services that report timely bill payments to credit bureaus can help build credit through existing financial responsibilities.

• Credit-Building Debit Cards: These cards work by fronting purchases and then grouping then into micro-loans that must be paid back by users. Users can establish credit history without needing a credit check, cosigner, or security deposit. Repayments are reported to credit bureaus, enforcing responsible spending through daily manual or automatic payments from the user’s bank account.

Also, let’s not forget financial education:

• Data-driven apps that analyze spending patterns and offer tailored advice on improving credit scores.

• Interactive online courses cover budgeting, debt management, and credit building, often using gamification to increase engagement.

• Short-form video content on platforms like TikTok and Instagram simplify complex financial topics, catering to Gen Z’s preferred learning style.

We Must Evolve

Gen Z deserves better tools to build credit without falling into debt traps. By combining innovation with financial education, we can create solutions that empower young adults to establish a solid financial foundation. The future of financial health and independence starts with rethinking credit for the next generation.