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Gen Z Credit Scores Plummet, Facing Unique Financial Challenges

A new report reveals a concerning trend: Gen Z is experiencing the sharpest decline in credit health of any age group, raising questions about their long-term financial stability.

Data released Saturday, October 18, from FICO’s Credit Insights Report, and initially reported by The New York Times, shows a meaningful drop in credit scores among young adults. The average FICO score for Gen Z now stands at 676, noticeably lower than the national average of 715. Alarmingly, roughly 14% of Gen Z borrowers have seen their scores fall by 50 points or more in the past year – the highest percentage recorded in five years.

The Perfect Storm: Student Debt, Inflation, and Limited Access

Several factors are converging to create this credit crisis for younger generations. The resumption of student loan repayments, coupled with the persistently rising cost of living, is placing immense financial strain on Gen Z. furthermore, access to conventional credit-building tools is dwindling.

“With fewer traditional ways to build credit,like homeownership,Gen Z is finding it harder to establish and maintain a strong credit profile,” explained an executive at the career platform AscentUP. This lack of opportunity is compounded by the increasing difficulty Gen Z faces in obtaining credit cards. Many are now relying on debit cards or buy now, pay later (BNPL) services, which generally do not contribute to building a positive credit history.

A Generational Gap in Financial Literacy

The challenges extend beyond access and affordability. A recent survey by USAA highlighted a significant gap in financial understanding within Gen Z. The data indicates that nearly half of Gen Z consumers do not fully grasp how credit scores function, and a concerning 20% have never checked their credit score.

This lack of awareness is particularly troubling given the importance of credit scores in securing loans, renting apartments, and even obtaining certain jobs. While Gen Z is demonstrably concerned about their financial well-being – and actively seeking ways to save – they are also vulnerable to unexpected financial setbacks.

Savings Disparities and the Rise of Side Hustles

Research from PYMNTS Intelligence underscores this vulnerability. Gen Z currently holds an average of $5,948 in readily available cash, significantly less than the $8,594 held by millennials and the $9,313 held by Generation X.The report further reveals that 40% of Gen Z savers are “very or extremely concerned” about the impact a $2,000 expense would have on their limited financial cushion.

The financial pressures are acutely felt depending on location. “A Gen Zer with a junior marketing job in Brooklyn will feel that pinch harder than one in Tulsa,” PYMNTS noted. Indeed, nearly 70% of Gen Z adults – and 64% of millennials – cite rising prices as their biggest day-to-day challenge, compared to just 39% of baby boomers.

To cope with these economic realities, Gen Z is increasingly turning to side gigs to supplement their income.While these part-time jobs typically account for 43% of a side hustler’s total earnings, that figure jumps to 57% for Gen Z and a striking 76% for those earning less than $50,000 annually, effectively transforming a financial safety net into a primary source of income.