The average American’s credit score has fallen for the second year in a row, and a new report from FICO finds younger Gen Z borrowers are affected the most.
The report released last month tracks the health of America’s “credit economy” and explores how borrowers are faring in paying back various forms of debt.
The latest report from FICO found delinquencies on auto loans, credit cards and personal loans are at or near their highest levels since the Great Recession in 2009 — with Gen Z borrowers facing the sharpest average score decrease of any age group.
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FICO said the age group is most likely to be further negatively affected by student loan repayment and the economic effects of higher interest rates and tariffs.
J. Michael Collins is a professor of public affairs and human ecology at the University of Wisconsin-Madison. He told “Wisconsin Today” that the new wrinkle in the story is student loans, saying the sharp rise in delinquencies is one of the more alarming aspects of America’s credit economy.
“If you look at the delinquency rate for student loans, they call it a ‘hockey stick.’ It’s just straight up,” Collins said. “There’s a real shock that people are facing in managing their credit.”
Last month, credit reporting agency TransUnion said 29 percent of federal student loan borrowers in repayment are 90 or more days past due on a loan payment. A recent survey from the agency found that nearly half of borrowers missing payments said they are struggling to pay because of “affordability concerns.”
Collins gave some caveats to the findings in the FICO report, noting that while younger borrowers are facing the sharpest drop in average credit score, borrowers under the age of 30 have historically been a demographic of concern.
“It’s always a group that struggles with their credit. It’s part of being a young adult and adjusting to managing credit. They’re just more likely to have instability in their employment. They’re trying to juggle maybe starting a family or going to school. All those things make it a riskier population,” Collins said.
Collins also noted that the nation’s average credit score remains much higher than in 2009. He said mortgage delinquency rates aren’t as alarming as during the Great Recession either.
“We obviously have to watch the student loan market really carefully and watch credit cards really carefully,” Collins said. “But it doesn’t seem to me quite at the level of what we saw 15 years ago.”
