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.

While your credit score is essential to keep your financial life healthy, it’s important to remember that it’s just a number and it doesn’t define you as a person, added Alev.

Pay on time

When it comes to the score calculation, one of the most critical factors is paying on time, whether that’s the minimum payment or the full balance.

“The one most important factor in the FICO score calculation is whether you make your payments on time. And that’s about 35% of the score calculation,” Lee said.

If you’re juggling several credit card payments and other debts, Alev recommends that you set automatic payments.

Keep your credit balance low

Keeping your credit utilization low and avoiding acquiring new debt can help you increase your credit score. Credit utilization is the percentage of the credit you’re currently using from across all your available credit.

While a low percentage is good for your credit score, it’s not recommended to have your credit utilization at 0%. Instead experts recommend you keep it between 10% and 30%.

If you’re struggling to pay off the debt you currently have, it’s best if you don’t acquire more debt if you can avoid it.

Credit scores change as your financial behavior does, so Lee recommends that if you’re not happy with your current credit score, you look to implement new habits in your financial life.

“The FICO score is dynamic. It changes based on how you make your payments. So your score, if you want to maintain it or improve it, you can do so by exhibiting good credit behavior,” Lee said.

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The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.