Why do banks distrust a 27-year-old with no credit history?
May 6, 2012 5:05 PM   Subscribe

Is lack of credit regarded as a risk only for older people? And if so, why?

A friend of mine is 27 and has never had a line of credit, and credit-card issuers evidently believe she's going to max out her cards and flee the country. This question isn't actually about what she can do about it (there were plenty of previous questions about that, and the answer she's trying to go with is "secured card for a year, unsecure if possible then"). I'm more wondering about the rationale behind the credit card issuers' distrust: I remember getting a card as a teen, back in the late 90s, to be ridiculously easy, even if the line of credit was a bit short. Now, of course, times have changed and lenders are a lot more cautious than they used to be, but I assume they're still regularly extending modest lines of credit to young people (either that or every single teen in America is going through hell building their credit history; gotta start somewhere, no?). So why the difference? Why is an 18-year-old with no credit history viewed as an acceptable risk, but a 27-year-old with no credit history is not?
posted by jackbishop to Work & Money (8 answers total) 1 user marked this as a favorite
 
I expect it's significantly tougher for everyone than it was in the late '90s, but two things I can think of:

- a 30 something who has always lived off the grid credit-card wise is probably considered to be a bit "unusual." And lenders hate "unusual."
- credit card companies have incentive to take a bit more chances with a young person. This is the time of their life they build brand preferences and HABITS ABOUT CREDIT.

For this reason, some feel that giving college kids credit cards is about like giving drugs and cigarettes to school children, but that's a divisive topic... the linked article also tells some about how the card co's secure their interests with younger customers.
posted by randomkeystrike at 5:10 PM on May 6, 2012


Among very young people, almost no one has a credit history. Therefore, the fact that a very young person has no credit history conveys very little information.

Among older people, not having a credit history sets you apart from your cohort, which means it conveys information about type.
posted by grobstein at 5:13 PM on May 6, 2012 [2 favorites]


Best answer: Because it is considered MUCH more likely that a 27-year-old with "no credit history" is a 27-year-old who is disguising a bad credit history than that they actually have no credit history.

I had this problem in my mid-twenties; I started with a secured credit-card. It was really frustrating -- people literally wouldn't believe the stuff I dealt with, like that my bank wouldn't give me a debit card.

But the explanation I was given time and again was that for every 25 year old American who has really truly never formally borrowed money, there are N people (10? 50? 100? I don't know) who are committing identity fraud.

I am not defending this position, only describing it.
posted by endless_forms at 5:15 PM on May 6, 2012


Besides what other people have already said, a 27 year old is probably more likely to have the resources and (unrelated) reasons to actually leave the country; an 18 year old, not so much.
posted by lollusc at 5:15 PM on May 6, 2012


Sigh. If you want an anecdote: at age 32, in the late 1980s, I applied for three different credit cards and was told each time that I was rejected for "insuffcient credit history"... now mind you, I had a solid employment history, I'd had an educational loan I'd paid off early, I had a car loan I'd paid off on time, and just a couple months earlier had gotten a mortgage.... I had "insufficient credit history", but they handed them out like candy to 18-year-old college freshmen. I finally got a card when I went slightly ballistic on them demanded to know what the problem was.

On the other hand: a lot of elderly married ladies ran into this when their husbands died, because all their credit history was in the name of Mr. & Mrs. John Smith, never in the name of Mrs. Jane Smith, and so they were invisible to the credit companies. The easiest solution around this was to take out a loan while their husband was still alive to co-sign: take out, say, a car loan, but make it solely in the name of Mrs. Jane Smith.
posted by easily confused at 5:35 PM on May 6, 2012


Best answer: I think some of this is also based on the notion that getting the 18-year-old as a customer offers higher upside. Give that kid a credit card and let him rack up his pizza and beer charges while in college and he'll be making payments for years. Meanwhile his parents are likely to bail him out if he gets in deep trouble. And you know this is someone who is in college, and who has no income now but in five years may be extremely upwardly-mobile. The income trajectory of someone at 27 is (in the aggregate) more predictable and offers less unrealized upside, and at 27 you are much less likely to have a parent providing you a big cushion if you start falling behind on your payments.
posted by dixiecupdrinking at 5:46 PM on May 6, 2012 [2 favorites]


I assume they're still regularly extending modest lines of credit to young people (either that or every single teen in America is going through hell building their credit history; gotta start somewhere, no?). So why the difference? Why is an 18-year-old with no credit history viewed as an acceptable risk, but a 27-year-old with no credit history is not?

Two anecdotal points:

* To borrow for student loans I had to get someone to cosign. This established a credit history for me, while the lender had the assurance of using my parents as a shield against default.
* We've nearly outlawed this, but credit card companies loved getting their hands on college students. I'd get regular calls from whichever dept released or sold my dorm number begging me to take a credit card. This doesn't happen anymore; you're required to demonstrate proof of income sufficient to cover the loan.

Between these two, I'm pretty sure the answer is that if they don't have a parent cosigner, said 18 year old kid is going through hell trying to build credit. I hear stories of helicopter parents deliberately getting their kids cards to build credit history, to give you an idea of how this works invisibly for the privileged.
posted by pwnguin at 7:03 PM on May 6, 2012


I hear stories of helicopter parents deliberately getting their kids cards to build credit history

You say this like it's a bad thing. Part of the education that I want to give my kids is how to survive in the financial world. I absolutely deliberately made sure they got a credit card while in college - we had the lectures about what/how much they could charge every month, they know they should pay it off in full every month (or leave a tiny balance to roll over every month if that's how you think credit scores get higher) but NEVER to charge so much that they can't pay it off. And I cosigned for their first one (if it was required) because I trust them to make good decisions and I want to help them get a good start in life. Now they have great credit and are doing fine on their own.
posted by CathyG at 10:34 AM on May 7, 2012 [1 favorite]


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