Gen Z credit scores fall sharply, prompting steps to improve
A new FICO report shows Gen Z’s average score dropping three points year over year as student loan delinquency reporting resumes, with experts outlining practical steps to recover.
NEW YORK — 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 from FICO this week. The national average credit score slipped two points to 715, while Gen Z’s average declined three points to 676, the largest year-over-year decrease among age groups since 2020.
The report notes that 34% of Gen Z consumers have open student loans, compared with 17% of the total population, and identifies the resumption of delinquency reporting as a primary driver of the decline in scores. federal relief paused student loan payments in March 2020 amid the Covid-19 pandemic. Payments were scheduled to resume in 2023, but a one-year grace period that ended in October 2024 effectively extended relief. This summer, the administration restarted collection efforts for outstanding loans, with wage garnishment and tax refund seizures as potential penalties if loans remain unpaid. Roughly 5.3 million borrowers who are in default could have wages garnished.
Beyond student debt, a tight job market and high inflation have left many young borrowers struggling to make payments on time. A low credit score can complicate or raise the cost of 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 the most potential for score improvement, according to Tommy Lee, senior director at FICO.
If your credit score has dropped recently, experts recommend taking action rather than avoiding the issue. It’s important to know where you stand to plan a path forward. “You need to know where you stand to be able to take action,” Alev said. Experian, FICO, and Credit Karma offer free ways to check your score.
While a credit score is a key indicator of financial health, it is only a number. As part of the score calculation, one of the most important factors is paying on time, which accounts for about 35% of the score, Lee noted. If you are juggling multiple debts, setting up automatic payments can help ensure on-time payments and reduce the risk of missing due dates.
Credit utilization—the percentage of your available credit you’re using—also matters. Experts say a low utilization rate is good, but keeping it between 10% and 30% is advisable; a utilization rate of zero is not recommended. Avoiding new debt when possible can help stabilize or improve your score over time, as responsible credit behavior feeds into the dynamic FICO calculation.
“The FICO score is dynamic. It changes based on how you make your payments,” Lee said. “If you want to maintain it or improve it, you can do so by exhibiting good credit behavior.”
The Gen Z cohort, while facing short-term headwinds, has the most potential for meaningful score recovery as borrowers adopt disciplined habits and rebuild payment histories.