At Credit Karma, we define a “Credit Fumble™” as being the phenomenon where young adults, new to credit and many without any financial education, make largely avoidable financial mistakes. When we finished our recent research into this pattern, even we were surprised to find out that more than two-thirds of young adults we surveyed experienced at least one Credit Fumble before they turned 30.
We’re excited to share this research today, not only because we believe that it finally quantifies a pattern of behavior that has likely been happening for decades, but also because we feel like these mistakes have a long-term impact on people’s lives. It doesn’t have to be this way.
Our research into the Credit Fumble draws upon a recent survey done in partnership with Qualtrics of 1,051 Americans between the age of 31-44, about the trouble they faced managing their personal finances before they turned 30. 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.
The main takeaways of our Credit Fumble research are:
● More than two-thirds of people surveyed (68 percent) made at least one major Credit Fumble before turning 30: either overspending on credit cards, missing payments, having an account sent to collections or defaulting on a loan.
● Three out of four of respondents felt like the financial mistakes they made before they turned 30 had a negative impact on the quality of their life.
● Only 28 percent of people surveyed received some type of personal finance education before college, with the majority of that education (58 percent) coming from parents.
● More than two-thirds of people surveyed (69 percent) did not properly understand what credit scores were when they got their first credit card; 73 percent said that better financial education could have prevented them from making credit-related mistakes.
● These Credit Fumbles make it hard for people to improve their financial situation as an adult: 61 percent of people surveyed were turned down for a credit card after making a Credit Fumble, more than a quarter (26 percent) had to move back in with their parents to recover financially.
The lessons for us are clear. These early credit mistakes are more common than we think and they affect people in very real ways. With better education and learning tools – both for people currently borrowing, and young adults who are or are about to be credit-eligible – this cycle could be prevented.
We think that Credit Karma can be part of the solution. Since 2014, we’ve worked with college and university students across the country to educate young Americans early in their credit life cycle, through our Campus Challenge and Student Ambassador programs. Alongside free credit scores and reports, Credit Karma members have access to friendly, personalized information to help each of them understand and make the most of their individual situation.
If you have experienced a Credit Fumble (or want to avoid one in the future) I encourage you to take a read of our research, and take a look around at the educational content on Credit Karma.
Best,
Kenneth Lin