Gen Z is facing a financial reality check, as credit repair experts warn that pandemic spending, student loan delinquencies and poor money habits have left young Americans vulnerable to a lifetime of higher costs and fewer choices.
“It’s not fun, it’s not glamorous,” New York-based credit expert Micah Smith told Fox News Digital. “We say, if you do what is hard, your life will be easy. If you do what is easy, your life will be hard.”
Last week, the inaugural FICO Score Credit Insights Report found that Gen Z borrowers took the biggest credit hit of any age group this year, with their average FICO scores slipping to 676 — well below the national average of 715.
“I really was so disheartened when the information came out that Gen Z, the generation that is coming up, is going to essentially help our country move in the way that it’s supposed to move… saw this catastrophic drop,” Smith said. “Once the credit scores drop, it’s like this snowball effect. Because what it does is, it impacts everything you do moving forward.”
EXPERT WARNS OF LOOMING CREDIT ‘CATASTROPHE’ THAT COULD WRECK YOUR SCORE IN 2025
Gen Z’s 676 average credit score marked the largest year-over-year decrease for any age group since 2020. FICO also noted that Gen Z is 1.5 times more likely to be aware of their credit and how it works.
“With these scores that are so low at such a young age… it really hurts the foundation and the platform that, essentially, they should be trying to build off of,” Smith reacted. “It’s going to not just cost them now, it’s going to cost them up to seven years from now or even longer if they don’t do something about it.”
Younger consumers often have “thin files” when it comes to credit history, making them more vulnerable to lasting damage. Smith also argued the pandemic taught unhealthy financial habits: deferred payments, “free money” and a false sense of no consequences.
“[COVID] groomed people to think and to act a certain way… unrealistic expectations were put into our subconscious, which is free money, free money, payments deferred,” she said, contrasting Gen Z with older generations who lived more cautiously. “Consistency is more key than these big things, these shiny objects, like chasing the influencer dream or chasing the get-rich-quick types of schemes.”
After prolonged student loan payment deferments ended in May, many Gen Z college students faced rising education costs and a weak job market. Across all age demographics, 42.7 million borrowers owe more than $1.6 trillion in student debt, according to the U.S. Department of Education.
“When you miss one payment on a student loan, you miss multiple payments… student loans have a very unique way of reporting… they don’t report you 30 days late, they don’t report you 60 days late, they go straight into 90,” Smith explained.
“Six and a half million people… missed their payments this year. And that single-handedly was, actually, the reason for the actual national average credit score dropping for the second year in a row.”
Regardless of age, Smith emphasized the real-world cost of a low credit score, noting that payment history makes up 35% of a FICO rating.
“At a 676 credit score, let’s say you took out a $300,000 loan… that’s gonna cost you an additional $300 a month just on the mortgage… a $20,000 car loan, that’s gonna cost you an extra $48 a month. Utilities, it’s gonna cost you an additional $300 deposit… Your car insurance is also gonna cost you an extra $50 a month,” the expert said. “Just over 10 years… that is going to cost you $63,480. That’s just interest.
“How bad could [a missed payment] be? Worst case scenario is it drops 180 points and your score dips for seven years,” she said. “Make sure you understand the importance of your payment history. Do whatever you have to do to pay your bills on time and nix any unnecessary spending that you can.”
Still, Smith noted that mistakes can be fixed and strong habits can reverse the damage.
“Everything has the potential to be fixed… [but] you cannot outwork bad habits,” Smith said. “You cannot out-earn bad habits, it will always rear its ugly head.”
“Money is a tool, and that’s all that it is… It’s not going to change who you are… Money amplifies who you are already,” she continued. “And so if we implement good habits now, when we have more, then our lives are just going to be blessed even more.”
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