Borrowing Young, Paying Later

Abstract. Restricting credit access protects borrowers from financial mistakes, but limits the accumulation of credit history that lenders use to extend future credit. We study these competing forces using the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which barred credit card issuance to individuals under age 21 without a cosigner or verified income. Exploiting cohort-based variation in exposure with an adjacent-cohorts design that controls for secular trends, we trace long-run credit outcomes using credit bureau data. The CARD Act reduced early card ownership and severe delinquency substantially, at the cost of a temporary credit score deficit in the early twenties. By age 30, treated individuals are 2–4 percentage points more likely to hold prime or super-prime credit scores and 5–6 percentage points more likely to own a home, but at the cost of increased mortgage delinquency. An instrumental variables decomposition reveals that protection from early delinquency drives the credit score and homeownership gains, while credit exclusion generates adverse selection into the mortgage market — borrowers who never had the opportunity to reveal their credit risk through card delinquency appear creditworthy on paper but default at elevated rates.

Keywords: Credit CARD Act, young adults, credit card access, consumer credit, credit scores, homeownership, mortgage delinquency, adverse selection, credit bureau data.

JEL codes: D14, G28, G51, K22.

@unpublished{heimer2026borrowing,
  author = {Cole, Allison and Heimer, Rawley Z. and Livshits, Igor},
  title  = {Borrowing Young, Paying Later},
  note   = {Working paper},
  year   = {2026},
  url    = {https://rawleyheimer.com/papers/borrowing-young-paying-later.html}
}