Gen Z Credit Scores Plunge as Cost of Living Rises

For members of Generation Z, it’s becoming harder and harder to maintain good credit.

That age group saw the steepest drop in credit health this year, The New York Times reported Saturday (Oct. 18), citing data from FICO’s Credit Insights Report.

According to the report, Gen Z’s average FICO score dropped to 676, compared to the national average of 715. And around 14% of Gen Z borrowers saw their score fall by 50 points or more, the largest share in five years.

The report said there are a few reasons for this decline, such as the resumption of student loan repayments, the rising cost of living, and less access to credit-building offerings. And with credit cards harder to come by, many Gen Zers now rely on debit cards or buy now, pay later (BNPL), which typically don’t help build a credit history.

“With fewer traditional ways to build credit, like homeownership, Gen Z is finding it harder to establish and maintain a strong credit profile,” Allie Danziger, an executive at career platform AscentUP, told NYT.

At the same time, the report noted, America’s big banks are focusing more on premium credit cards geared toward wealthier customers.

NYT also pointed to a recent USAA survey showing that close to half of Gen Z consumers don’t entirely understand how credit scores operate, while 20% have never checked their score.

That isn’t to say members of this generation aren’t concerned about their financial well-being. As noted here last month, while Gen Z is trying to save, it is also dealing with the reality of not being able to withstand financial shocks.

Research by PYMNTS Intelligence has shown that Gen Zers have an average of $5,948 of readily available cash, or dollars in the bank or at home. That’s compared to $8,594 on average for millennials and $9,313 for members of Generation X.

“Even among those who have savings on hand, 40% are very or extremely concerned about the damage a $2,000 expense would do to their existing cushion,” PYMNTS wrote.

“A Gen Zer with a junior marketing job in Brooklyn will feel that pinch harder than one in Tulsa. Nearly 70% of Gen Z adults (and 64% of millennials) say rising prices are their biggest day-to-day challenge, compared with 39% of baby boomers.”

More recently, PYMNTS wrote about the use of side gigs by these consumers to supplement their incomes.

While these part time positions account for 43% of the average side hustler’s total income, that figure climbs to 57% for Gen Z consumers and 76% for those earning less than $50,000 per year, “turning what was once a cushion into a core source of liquidity,” PYMNTS wrote.