For the second year in a row, America’s credit health is slipping, and no one is feeling the strain more than Gen-Z.
The average FICO score in the U.S. fell to 715 in April 2024, down from 717 a year earlier, according to new data released Tuesday by Fair Isaac Corp., the Montana-based company that created the widely used credit scoring system.
That two-point decline may sound small, but it marks the worst year for consumer credit quality since the 2009 aftermath of the global financial crisis, when the average score tumbled three points to 687.
Behind the overall dip lies a striking generational story. Gen Z borrowers, ages 18 to 29, saw their scores fall more sharply than any other age group, dropping three points to 676.
Not only is this the steepest decline this year, it is also the biggest slide by any age group since 2020.
“Gen Z consumers have had less time to build savings and are less likely to benefit from stock market gains and home price appreciation,” the report noted.
“Instead, they are more likely to have affordability issues and more likely to face the impacts of higher interest rates and inflation.”
The student loan effect
Some 34% of Gen Zers are still paying off student loans, compared with just 17% of the overall population.
The resumption of student loan delinquency reporting, paused during the pandemic, has fueled a surge in missed payments, which hit a record 3.1% of the entire scorable population this year.
The ripple effects have been immediate. According to FICO, 14.1% of Gen Z consumers saw their scores plunge by 50 points or more in 2024, far higher than the 10% figure across the general population.
The Federal Reserve Bank of New York had already sounded the alarm back in March, warning that late student loan payments would send borrowers’ scores tumbling.
Gen Z, with its shorter credit histories and thinner financial buffers, has proven especially vulnerable.
As Tommy Lee, senior director at FICO, told CNN: “We have seen a K-shaped economy where those with wealth tied to stock market portfolios and rising home values are doing well and others are struggling with high rates and affordability problems.”
Rising debt, rising pressure
Student loans are not the only factor dragging scores down. Credit card balances are ballooning as Americans struggle to keep up with higher costs of living.
FICO’s report found that credit card utilisation, the share of available credit being used, has climbed to 35.5%, a sharp rise from its pandemic-era low of 29.6% in April 2021.
That earlier dip was fueled by government stimulus cheques and restricted spending during lockdowns. Now, as stimulus has dried up and inflation bites, many households are leaning on credit cards once again.
“Millions of Americans are struggling mightily in the face of stubborn inflation, high interest rates, a difficult job market and overall economic uncertainty and tough times often force tough decisions,” said Matt Schulz, chief credit analyst at LendingTree, in an interview with CNBC.
He added, “I’m not surprised that credit scores are slipping. There’s very little in life that’s more expensive than having crummy credit. It can cost you tens of thousands of dollars over the years in fees and interest.”
Why does credit score matter?
Credit scores are far more than a number on a report, they shape financial futures.
Lenders look to them when deciding whether to approve mortgages, car loans, or even new credit cards. A lower score can mean higher interest rates, or rejection altogether.
And for Gen Z, now stepping into adulthood amid inflation, expensive housing, and higher borrowing costs, the stakes are especially high.
As the report reveals, shorter credit histories make younger consumers’ scores more volatile. With less experience demonstrating on-time payments, they’re more exposed when setbacks come.
In 2009, the drop in credit scores indicated deep financial pain in households nationwide. Today, the three-point dip may be smaller, but it is concentrated among those who can least afford it.