Gen Z’s credit scores are seeing a ‘catastrophic decline’ — and student loans and devastating spending may be to blame

Younger consumers typically see the fastest year-over-year gains in credit scores as they build their financial history. But this year, the opposite happened: Gen Z saw the steepest annual decline of any age group since 2020, as their average FICO credit score fell three points to 676. That’s 39 points lower than the national average of 715, according to a new study. FICO report.

Erin Stilwell, head of payments at Globant, said the decline was a “red flag”, not just for younger consumers, but also for the health of the broader credit market.

“Today’s youth only borrow for basic stability, not luxury,” she said. luck. “This decline reflects a generation building a financial identity in a system that rewards stability but creates volatility.”

This volatility accumulates. Generation Z is more likely to feel the sting of stubbornness Economic inflation and High interest rates. With less time to build savings, invest in the stock market, or take advantage of rising home prices, they are already on shakier financial ground than their older counterparts. Add in Return of student loan payments And rise”Spending to ruin“—the impulse to spend as a way to cope with financial anxiety—and became a perfect storm.

“Compared to previous generations, Gen Z’s financial fragility is not just cyclical, it is structural,” Stilwell added. “Gen Z is the first group to face rising inflation, digital credit, and social media-driven consumption pressures simultaneously.”

The long-term financial “snowball” that could trap Generation Z

While it’s not uncommon for credit scores to ebb and flow — especially amid major shifts like the return of student loan payments — the current downturn could have lasting consequences if your spending and repayment habits don’t change.

“I was very frustrated when the information came out that Generation Z, the next generation, (that is supposed to) basically help our country move the way it’s supposed to move… had this catastrophic decline,” credit expert Micah Smith said. Fox Business. “Once credit scores go down, it’s like a snowball effect. Because it affects everything you do moving forward.”

A low credit score can make it more difficult to qualify for credit cards or loans, raise borrowing costs, or even impact… Car insurance Or apartment demands and over time, this can trap young people in a cycle of debt and missed opportunities to grow their financial future – from starting a business to buying a home.

Homeownership in particular, which has long been considered a cornerstone of… The American dreamis already slipping out of reach. Generation Z now carries more than $94,000 in personal debt on average, a Newsweek reconnaissance Show — much more than the roughly $60,000 for Millennials or $53,000 for Gen Xers. with Rental prices are still high In most parts of the country, saving for a down payment can seem nearly impossible.

“It’s not just an individual issue, it’s a community issue,” Stilwell said. “A generation unable to build financial stability translates into less economic dynamism and weaker family formation.”

However, she said there is room for optimism — especially if Gen Z approaches their financial health just as they approach the well-being of their bodies: “Forgive yourself for early mistakes, but learn from them quickly.”

“Financial resilience is not perfection; it is repetition,” Stilwell said.

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