NEW YORK (AP) 鈥 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 .
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 for outstanding student loans, with plans 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 , a , and high inflation, young consumers are struggling to make payments on time, according to the report. A makes it more complicated or more expensive to obtain car loans, mortgages, credit cards, auto insurance, and other financial services.
鈥淭hey鈥檝e had so many different ongoing causes of economic instability that have really been with them as they鈥檝e been growing up; those factors make it a lot harder for this generation to stay financially stable,鈥 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鈥 recommendations:
Don鈥檛 avoid knowing your score
It鈥檚 common to be afraid of checking your credit score, but it鈥檚 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.
鈥淵ou need to know where you stand to be able to take action,鈥 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鈥檚 important to remember that it鈥檚 just a number and it doesn鈥檛 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.
鈥淭he one most important factor in the FICO score calculation is whether you make your payments on time. And that鈥檚 about 35% of the score calculation,鈥 Lee said.
If you鈥檙e 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鈥檙e struggling to pay off the debt you currently have, it鈥檚 best if you don鈥檛 acquire more debt if you can avoid it.
Credit scores change as your financial behavior does, so Lee recommends that if you鈥檙e not happy with your current credit score, you look to implement new habits in your financial life.
鈥淭he 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,鈥 Lee said.
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