Gen Z’s credit scores are dropping. Here’s what to do if yours is too
NEW YORK (AP) — Gen Z has seen its credit scores drop more than any other generation over the past year, largely because of student loan debt, according to a new report out this week.
The total national average credit score dropped two points this year to 715, according to the report from credit scoring company FICO. But Gen Z’s average score dropped three points to 676, the largest year-over-year decrease among any age group since 2020.
A credit score is a mathematical formula that helps lenders determine how likely you are to pay back a loan. Credit scores are based on your credit history and range from 300 to 850.
The report found that 34% of Gen Z consumers have open student loans, compared to 17% of the total population, and the decline in credit scores is primarily due to the resumption of student loan delinquency reporting.
The U.S. Department of Education paused federal student loan payments in March 2020, offering borrowers relief during the economic chaos of the coronavirus pandemic. Though payments were set to resume in 2023, the Biden administration provided a one-year grace period that ended in October 2024.
This summer, the Trump administration restarted the collection process for outstanding student loans, with plans to seize wages and tax refunds if the loans continue to go unpaid. Roughly 5.3 million borrowers who are in default could have their wages garnished by the federal government.
Between student loans, a tough job market, and high inflation, young consumers are struggling to make payments on time, according to the report. A low credit score makes it more complicated or more expensive to obtain car loans, mortgages, credit cards, auto insurance, and other financial services.
“They’ve had so many different ongoing causes of economic instability that have really been with them as they’ve been growing up; those factors make it a lot harder for this generation to stay financially stable,” said Courtney Alev, consumer advocate at Credit Karma.
However, younger consumers also have the advantage of having the most potential for score improvement, Tommy Lee, senior director at FICO.
If your credit score has dropped recently, here are some experts’ recommendations:
Don’t avoid knowing your score
It’s common to be afraid of checking your credit score, but it’s best not to avoid it, Alev said. Knowing your current score, whether it’s good or not great, can help you make a plan for the future.
“You need to know where you stand to be able to take action,” Alev said.
Experian, FICO and Credit Karma are among the companies that let you check your credit score for free.