Gen Z’s credits scores are heading to an all-time low since the Great Depression. So let’s talk about it, and not only what this means for Gen Z, but also the students at CMHS.
The Run Down
Over the past few weeks, researchers have discovered the all-time low Gen Z has in terms of credit scores. Now, you may be asking yourself, why is this? Well, to put it simply, rising inflation, student debt, and lack of financial management.
What are credit scores even used for? Great question. A credit score is a three digit number, typically ranging from 300 to 850, that estimates your likelihood of paying back borrowed money on time. A higher score means that you are “safer” to loan money to. Credit scores can be used for a lot of things, for instance getting a loan to purchase a car, or getting a house mortgage. Credit scores can also affect jobs you apply for, living costs, and even accessing critical services such as utilities, cell phone service, student loans, and healthcare.
Bad credit scores don’t just impact young people, they affect everyone. Bad credit scores can make accessing essential services difficult, and taking out loans will be much harder to do. Higher interest rates on credit cards also means that just going about life will be more expensive.
Gen Z’s Credit Crunch
Gen Z (or people born roughly between 1997 and 2012), are experiencing declining credit scores, higher delinquency rates, and increased reliance on credit cards to live. Whereas the national average credit score is 715, Gen Z has an average credit score of 676, down three points since last year and representing the largest decline among any age group since 2020.
This may be due to student loans, since data shows that 34% of Gen Z have student loans, compared to only 17% of the total population. Gen Z is also plagued by inflation and rising costs, which are causing them to place higher amounts on money on their credit cards and risk defaulting on those balances.
Finally, due to Gen Z’s shorter credit score history, they have “thin” credit files. They haven’t had enough time to borrow money and establish good credit. This makes their scores more volatile, so even a single missed payment can have a huge impact on them when compared to older adults.
What does this mean for me?
Knowing how important a good credit score is for your future, here are some tips to build and establish excellent credit:
- Track your income and expenses. Record where your money comes from and where it goes.
- Pay all bills on time. If you have a credit card or cell phone in your name, make sure you make payments on time every month.
- Show responsibility. Try to plan for big purchases and make sure you are making responsible buying decisions.
- Save. If you have a job, consider putting a small portion into savings every month. This can add up fast and be a great resource when you have unexpected expenses.
- Build a positive credit history. Even though a debit card doesn’t build credit, you can practice making responsible financial decisions and set the stage for using a credit card later.
- Take advantage of technology. Mobile banking and budgeting apps can help you track your spending and monitor your accounts.
Still have questions? Check out MyMoney.gov for information about Social Security, taxes, and financial information.
