The consequences of ‘credit fumble’ linger for young adults

Fumbling the football in a big game usually is a bad thing.

Sometimes the consequences linger, although usually not for years, let alone a decade.

But this can be the result of a “credit fumble,” or significant financial mistake, about two-thirds of young adults make before they turn 30 years old, according to Credit Karma, a consumer credit advice website.

021816 SC The consequences adults

“Credit Karma’s credit fumble research quantifies a phenomenon that’s played out for too long in America,” said Kenneth Lin, Credit Karma founder and CEO. “The lessons for us are clear: These early credit mistakes are more common than we think, and they affect people in very real ways.”

The major mistakes, or credit fumbles, include overspending on credit cards, missing payments, having an account sent to collections or defaulting on a loan, reported Credit Karma, which partnered with a research company, Qualtrics, to survey 1,051 Americans ages 31-44, about trouble they encountered managing their personal finances before they turned 30 years old.

“We looked at this alongside data from our more than 45 million members to put into hard numbers what we’ve long suspected as true – that new-to-credit consumers have the freedom to borrow, but not always the education to manage the responsibility, and it’s taking its toll,” Credit Karma said.

Among the survey’s other findings:

  • Three out of four respondents felt like the financial mistakes they made before they turned 30 had a negative impact on the quality of their life.
  • More than two-thirds of people surveyed (69 percent) did not properly understand what credit scores were when they got their first credit card.
  • Credit fumbles make it hard for people to improve their financial situation as adults with 61 percent of those surveyed having been turned down for a credit card and more than a quarter (26 percent) moving back in with their parents to recover financially.
  • Only 28 percent of people surveyed said they received some type of personal finance education before college, with most (58 percent) getting it from parents.
  • Nearly three-quarters (73 percent) said better financial education could have prevented them from making credit-related mistakes.

Indeed, the greater the offense, the longer it will be reflected on a credit report, Bethy Hardeman, Credit Karma chief consumer advocate, told CNBC, while noting that it usually takes consumers seven to 10 years to erase negative marks from their credit.

“I think a lot of people don’t realize … is how a missed payment can stay on your credit. It can be one mistake that you don’t think is a big deal that can cost you thousands in the long run.”

“These early mistakes,” added Lin, “can have a lingering impact on the quality of people’s lives.”