WASHINGTON — Charlie Frohne never wanted a Visa or MasterCard, afraid of incurring debts he couldn't repay. As the 30-year-old searched for a Manhattan apartment, he found landlords treated his lack of a credit history as a liability.
"You don't have a credit history, and they consider that a bad thing," said Frohne.
While no landlords who turned him away cited his thin credit file, Frohne said several "seemed to frown on it. It's always a bump in the road."
His experience highlights a growing reluctance among young adults to use plastic for everyday purchases. Thirty-nine percent of undergraduate students between the ages of 18 and 24 owned a credit card in 2012, down from 49 percent in 2010, a Sallie Mae and Ipsos Public Affairs survey found.
And young adults who do have credit cards are carrying smaller balances: A median of $1,600 in 2010 compared with $2,500 in 2001 for under-35 households, according to Federal Reserve data.
The trend, rooted in stricter lending rules and weaker job outlooks for young Americans since the 2008-09 recession, has implications for the strength of the economy. As people in Frohne's age group eschew plastic, fewer are building the credit histories that would help them to gain financing for purchases of homes and cars that are critical to economic growth.
"You could say that they're not going to get mortgages, and that could have dire economic consequences," said Ann Schnare, a mortgage industry consultant. "But that assumes a static model. I think that the industry will respond."
Credit bureaus and the lending industry are stepping up their search for ways to bolster credit files, and young people who don't pay credit card bills often do pay mobile phone bills. As reporting agencies gather data from telephone, rent and other payments, some scoring models incorporate it to help assess candidates' creditworthiness.
"If the only way to get credit is to borrow, young people are going to be slower to borrow. It is circular," said Rachel Schneider, senior vice president of insights and analytics at the Center for Financial Services Innovation.
Leveraging extra data is a way of "bringing new people in" for banks as the economy rebounds, she said.
A generation of credit-averse consumers could weigh on the economic recovery.
"Given the trends in credit usage by younger Americans, I think there will be a growing number of Americans who are credit invisible," said Michael Turner, chief executive of the Policy and Economic Research Council in Durham, N.C.
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