Credit scores have long been viewed by critics as arbitrary—mostly because there are so many factors that affect them —and some people even view them as discriminatory. Yet they’re a necessary evil to get what Americans want most: homes, cars, and lower insurance rates.
It can take years to build a robust credit file needed for what’s considered a “good” score (above 700), which many young consumers don’t have. But a new report by Open Lending and TransUnion, one of the major credit reporting agencies, shows that millennials and Gen Zers are “poised” to move up credit tiers. That may be hard for these younger generations to believe, however, who just don’t feel as good about the economy and their finances, a phenomenon that has been called the “vibecession.”
It’s no wonder that millennials and Gen Zers don’t feel great about their credit scores. After all, many lenders are “hesitant to extend loans” to borrowers with “thinner credit files,” said Kevin Filan, senior vice president of marketing at Open Lending. These are consumers with low credit scores or who just haven’t had years of credit to prove they’ll pay their loan back.
However, millennials and Gen Zers are actually a “strategic consumer segment [that] shows immense potential for upward credit mobility compared to their older counterparts,” Filan said in a statement. “The financial institutions that intelligently address these ‘emerging prime’ borrowers through comprehensive data analysis and decisioning can generate higher-yielding loan opportunities and long-term customer loyalty.”
A breakdown of younger generation credit scores
In 2023, the average credit score in the U.S. was 715, according to a January report by Experian, one of the major consumer credit reporting companies. That score is considered to be right at the top of the “good” credit band, just a few points shy of an “excellent” credit score.
Millennials and Gen Zers, however, average lower credit scores. Millennials average a credit score of 690, and Gen Zers come in at 680. For reference, the qualifying credit score for most conventional home loans is 620, according to Rocket Mortgage.
There are five main factors that affect your credit score, Kendall Meade, a financial planner with personal finance company and online bank SoFi, tells Fortune. This includes payment history, credit utilization, credit history length, credit inquiries, and types of credit.
Interestingly enough, the Open Lending and TransUnion report also shows that millennials and Gen Zers are actually poised to improve their credit scores more quickly than Gen X or other older generations. Using data from more than 4 million U.S. consumers, they found that 30% of millennial and Gen Z thin-file consumers moved up credit tiers within two years, while just 22% of older generations did. That largely has to do with credit length and payment history.
That’s because younger generations are starting from scratch, Joseph Camberato, CEO of business lending firm National Business Capital, tells Fortune. They start out with a blank slate and comparatively not much debt.
“When they handle their first credit card or auto loan responsibly by paying on time, their credit score shoots up quickly. This good track record makes it easier for them to get loans in the future,” Camberato says. “On the other hand, older generations like Gen X and baby boomers might have piled up more debt over the years, which takes longer to deal with on their credit reports. Plus, as they slow down on spending, they’re not as focused on boosting their credit.”
But just because someone is a member of a younger generation doesn’t automatically mean their credit score will improve. They still have to pay off their credit cards in full each month—and charge only what they can afford, Meade warns.
“While this trajectory is good news for younger consumers, it is very important that they stay on top of their debts,” she says.
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FAQs
How Credit Scores Breakdown by Generation
| Average FICO 8 Score by Generation |
|---|
| Generation | 2022 | 2023 |
|---|
| Generation Z (ages 18-26) | 679 - Good | 680 - Good |
| Millennials (27-42) | 687 - Good | 690 - Good |
| Generation X (43-58) | 707 - Good | 709 - Good |
2 more rowsYou may have guessed that credit score tends to increase with age – and you're right! For Gen Z Americans (ages 18 – 25), the national average credit score is 680, while the average score for the Silent Generation (age 77+) jumps to 760. Building good credit takes time (among other things).
Which generation has the best credit? ›
Gen Z: 711
Baby boomers have the highest credit scores among the generations, with Gen X coming in second, trailing baby boomers by 26 points and falling just below the national average.
What is the average credit card debt held by Gen Z? ›
It's the youngest generation that's of legal age to have their own credit cards, so they haven't had access to the convenience of this form of payment as long as other generations. Even so, the average credit card debt for Gen Zers was $2,854 in the third quarter of 2022, according to Experian.
What is the category between millennials and Gen Z? ›
Zillennials (also known as Zennials) is the demographic cohort on the cusp of the Millennial and Generation Z cohorts. Their adjacency between the two generations and limited age set has led to their characterization as a "micro-generation." They are generally the children of younger Baby Boomers and Generation X.
What year is the cutoff between millennials and Gen Z? ›
Millennials were born between 1981 and 1996 while members of the Gen Z years Gen Z years were born between 1997 and 2012.
How would you describe the relationship between age and credit scores? ›
Final answer: The relationship between age and credit scores is generally positive, with older individuals tending to have higher credit scores. Factors such as employment status, income level, and financial responsibilities can help explain this relationship.
Is credit score affected by age? ›
It's reassuring to know that your age and your salary won't determine whether you have a good or bad credit score, but you should still know what lenders will see when they evaluate your risk.
What is the credit age for credit score? ›
The credit scoring algorithms calculate the average of how long all your accounts have been open. That average age of accounts is your “credit age.” It's all but impossible to get a score higher than 800 if you're young, because your credit age likely will be low.
What is the most popular credit product for Gen Z? ›
Credit cards (50%) were the most common financial product held by Gen Z, ahead of student loans (39%), auto loans (25%) and unsecured personal loans (4%). While half of U.S. credit-active Gen Z consumers have credit cards, that pales in comparison to those located in Canada (99.8%) and Hong Kong (91%).
Gen Z is in the financial trenches. A new study from credit reporting agency TransUnion found those in their early 20s are earning less, have more debt and see higher delinquency rates than Millennials did at their age.
What is Gen Z gen alpha? ›
As society progresses into the 21st century, attention is shifting from Generation Z — individuals born roughly between 1997 and 2012 — to Generation Alpha, the group starting from 2010 onward. These generations are distinct, each shaped by the technological, societal, and global contexts of their upbringing.
Do Gen Z use credit cards? ›
The study found that 84% of credit-active Gen Z consumers had at least one credit card (bankcard) as of Q4 2023. This is significantly higher than the 61% of credit-active Millennials who had at least one card 10 years prior.
Which generation has the most student debt? ›
With federal student debt totaling $1.63 trillion, the majority of federal student debt is concentrated with Generation X. The average Baby Boomer with student loans tends to owe more than the average Millennial. However, on the national scale, Millennials have a larger overall debt than Baby Boomers.
What age group has an 800 credit score? ›
Baby boomers (ages 58 to 76) with 800-plus scores have an average utilization ratio of 6.3%, while all baby boomer cardholders have an average utilization ratio of 14.3%. The silent generation (ages 77 and older) with 800-plus scores have an average utilization ratio of 4.6%.
What is the average millennial credit? ›
A breakdown of younger generation credit scores
Millennials and Gen Zers, however, average lower credit scores. Millennials average a credit score of 690, and Gen Zers come in at 680. For reference, the qualifying credit score for most conventional home loans is 620, according to Rocket Mortgage.
What is the average credit limit for Gen Z? ›
In 2021, Gen Z had an average credit limit of $9,857, but it increased in 2022 to $11,290. Millennials (1965-1980) had the second largest credit limit increase, at 11.4%, for an increased credit limit of $24,668, up from $22,136 in 2021.
What is a good Z credit score? ›
Very poor: 300-579. Poor: 580-600. Fair: 601-660. Good: 670-739.
