Gen Z Credit Scores Decline: Experts Offer Steps to Rebuild
NEW YORK (AP) – A growing number of Gen Z consumers are experiencing drops in their credit scores, raising concerns about their future financial opportunities. While many in this generation are new to credit, a combination of economic pressures and evolving financial habits are contributing to the trend, leaving them possibly facing higher interest rates on loans and difficulty securing housing.
This decline comes at a critical juncture for young adults as they begin to navigate major life milestones like renting apartments, purchasing cars, and eventually, buying homes. A healthy credit score is essential for accessing these opportunities at favorable terms.Experts emphasize that understanding your credit standing and proactively building positive financial habits are crucial steps toward securing a stable financial future.
“Knowing your current score, whether it’s good or not great, can definitely help you make a plan for the future,” said Alev, an expert on credit scores. “You need to know where you stand to be able to take action.”
Fortunately, checking your credit score doesn’t have to be a financial burden. Experian, FICO and Credit Karma are among the companies that offer free credit score access. However, it’s crucial to remember that a credit score is simply a number. “While your credit score is essential to keep your financial life healthy, it’s important to remember that it’s just a number and it doesn’t define you as a person,” Alev added.
One of the most significant factors influencing your credit score is on-time payment history. According to Lee,”The one most important factor in the FICO score calculation is whether you make your payments on time. And that’s about 35% of the score calculation.” To avoid missed payments, especially when managing multiple debts, Alev recommends setting up automatic payments.
Another key component is credit utilization – the amount of credit you’re using compared to your total available credit. Keeping this percentage low is beneficial, but experts advise against aiming for 0%. A healthy range is between 10% and 30%.
If you’re already struggling with debt, experts strongly advise against taking on more. “if you’re juggling several credit card payments and other debts, it’s best if you don’t acquire more debt if you can avoid it,” the article states.
Ultimately, credit scores are not static. “The FICO score is dynamic. It changes based on how you make your payments,” Lee explained. “So your score, if you want to maintain it or improve it, you can do so by exhibiting good credit behavior.” By implementing positive financial habits, Gen Z consumers can actively work towards improving their credit scores and securing a brighter financial future.
The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The autonomous foundation is separate from charles Schwab and Co. Inc. The AP is solely responsible for its journalism.
