Why so many young adults accidentally destroy their credit

Good credit is a little like insurance – you don’t really think much about it until you need it. Which is probably at least part of the reason why young adults tend to do so much damage to their credit without even knowing it.

According to a survey and data analysis from Credit Karma, over two-third of Americans admit to making some sort of significant, credit-related mistake before the age of 30. This includes overspending on credit cards, missing payments, and defaulting on accounts.

Undereducated and unprepared

These kinds of damaging mistakes can really set young adults back just at the moment they would most benefit from a strong credit history. Many personal and household goals can be derailed by damaged credit. In fact, three out of four respondents to the survey felt that the financial mistakes they had made as a young adult negatively impacted the quality of their life.

Probably not coincidentally, less than 30 percent of those surveyed stated that they had had any form of financial education prior to college, with 73 percent believing that financial education could have helped them avoid their financial missteps. Additionally, 69 percent claimed they didn’t even know what credit scores were at the time they received their first credit card.

Future consequences

Whether or not they’ve gone to college, and whether or not they’re carrying massive amounts of student loan debts, young adults leaving home and managing their own finances are going to face a series of difficult choices. They’re also going to be required to take on responsibilities they may not be prepared for.

Taken together, those two factors lead many young adults to make decisions that seem to suit their immediate needs, but put their future needs at risk, such as:

  • Living without a clearly defined budget
  • Prioritizing wants over needs
  • Failing to create an adequate student loan repayment strategy
  • Signing up for services or utility packages they cannot afford
  • Failing to make regular, timely bill payments

Planting the seed

Financial education doesn’t need to be time-consuming or complex, but it is absolutely essential that young adults receive at least a basic education in managing their funds and utilizing credit. We make teenagers take driver’s education courses before they’re allowed to drive because no one expects them to be able to drive safely and confidently without some amount of instruction. Similarly, we shouldn’t expect young adults to make smart money choices if we don’t first show them how it’s done.

As it stands right now, when it comes to financial know-how, we’re often forced to learn as we go. And that can certainly be an effective way to learn. But a lot of lasting damage can happen on the way to figuring out how to get organized, how to set our priorities, and how to separate the right choice from the easy choice.

If you have children, make sure personal finance is part of their curriculum; if not at school, then at least at home. You don’t need to be an expert to share the lessons you’ve picked up over the years. Besides, teaching them how to read a credit report can’t be anywhere near as frightening as teaching them to drive.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.