Gen Z's Credit Crisis: A System That Rewards Stability, Yet Delivers Volatility

Gen Z's average FICO credit score fell three points to 676 in 2025, marking the steepest annual decline among any age group since 2020 and 39 points below the national average of 715, according to a FICO reportFortune^[1]. This drop has raised alarms among financial experts, who attribute it to a confluence of structural and cyclical challenges. The resumption of student loan repayments after a three-year pause, persistent inflation, and the rise of "doomspending"-impulse purchases driven by financial anxiety-have collectively exacerbated Gen Z's financial fragilityYahoo Finance^[2].

Student loans remain a critical factor. Nearly 34% of Gen Zers are still repaying their student debt, compared to 17% of the broader populationFortune^[1]. The cohort's average personal debt load exceeds $94,000, far surpassing the $60,000 owed by millennials and $53,000 by Gen XGMA^[3]. With housing prices and rent costs remaining high, saving for a down payment or even managing monthly payments has become increasingly difficult. For example, Kennedy Quintanilla, a 24-year-old UT Austin graduate with $26,000 in student debt, described the resumption of payments as "extraordinary stressful"GMA^[4].

Credit utilization rates have also surged, with Gen Z's credit card balances rising to 35.5% of available credit limits, compared to 29.6% in 2021Fortune^[1]. This trend reflects a broader shift toward using credit to cover essential expenses. Erin Stillwell, head of payments at Globant, noted that Gen Z is building financial identity in a system that "rewards stability but gives volatility," compounding their struggles with inflation, digital credit, and social-media-driven consumption pressuresFortune^[1].

The consequences of declining credit scores are far-reaching. Lower scores can increase borrowing costs, limit access to credit cards or loans, and even affect car insurance rates. Over time, this could trap Gen Z in a cycle of debt, hindering opportunities to start businesses, buy homes, or invest in their futures. Micah Smith, a credit expert, warned that the drop creates a "snowball effect," where deteriorating credit scores "impact everything you do moving forward"GMA^[3].

Financial institutions are also observing shifts in Gen Z's credit behavior. The cohort has shown a 76% increase in credit file presence since 2021, with 68% opening new credit cards-nearly double the rate of millennialsEquifax^[5]. However, their high utilization rates and limited credit history have resulted in an average VantageScore of 665, reflecting the challenges of balancing debt and financial goalsEquifax^[5].

Experts caution that the resumption of student loan delinquency reporting in 2025 could further strain Gen Z's credit scores. Prior to the pandemic, student loan delinquency rates hovered around 40%; with repayment now mandatory, delinquencies are expected to rise, potentially impacting broader financial stabilityEquifax^[5]. Erin Confortini, a Gen Z financial advisor, emphasized the need for proactive planning, noting that many young borrowers are unprepared for the fixed costs of student loan payments alongside existing expenses like rent and car paymentsGMA^[4].

While the outlook appears grim, some argue that Gen Z's adaptability offers hope. Vivian Tu, a personal finance expert, suggested that the generation's tech-savviness and familiarity with digital tools could help them navigate financial challenges more effectivelyEquifax^[5]. Stillwell echoed this, advising Gen Z to treat financial resilience as an iterative process: "Forgive yourself for early mistakes, but learn from them fast"Fortune^[1].