In a troubling sign of a sluggish economy, the average credit score across the United States has decreased by two points compared to the same period last year.
The well-known credit scoring agency FICO reported on Tuesday that the current average credit score for all American consumers stands at 715, a drop from the 717 recorded in October 2024. This decline represents a significant event, as it marks the first instance since 2009 during the Great Recession where the average FICO score has decreased by two points within a single year.
FICO scores range from 300 to 850, with a score of 715 generally categorized as indicative of “good credit.” However, the recent two-point reduction in the collective scores of consumers is raising significant concerns among financial experts. Typically, average credit scores show an upward trend each year, sometimes increasing by as much as five points. A decline, particularly one as notable as two points, is quite rare and warrants attention.
The underlying cause of this decline is the increasing number of Americans who are struggling to keep up with their various loan payments.
“Delinquency rates on auto loans, credit cards, and personal loans are at or very close to their highest levels since 2009,” states economist Amy Crews Cutts in the FICO report.
These warning signs are “more consistent with an economy in recession than one still in expansion,” she further elaborates.
It is crucial to mention that a formal declaration of a U.S. recession has not yet been made, although economists are increasingly concerned about its likelihood. Mark Zandi, the chief economist at Moodys, indicates that the chances of a recession occurring within the next 12 months are now “uncomfortably high.”
Why Is Gen Z Experiencing a Significant Decline in Credit Scores?
As members of Gen Z embark on their financial journeys, they are facing substantial challenges with their credit ratings. Born between 1997 and 2012, Gen Z borrowers currently hold an average credit score of 676, which is 39 points lower than the national average.
Although it is common for younger consumers to have lower credit scores compared to older generations, the average score for this demographic has also experienced a drop greater than that of others—declining by three points since last year. Experts attribute this downward trend largely to missed payments on federal student loans, as delinquencies are once again being reported to credit bureaus following a five-year hiatus.
Tommy Lee, senior director of analytics and scores at FICO, warns that the situation may worsen before it improves.
“We anticipate additional student loan delinquencies in the coming months, as not all individuals who have missed student loan payments have yet been reported as delinquent,” Lee explains in a FICO analysis.
Federal student loans differ from other items on a credit report, such as credit cards or auto loans. Typically, delinquencies are categorized by timeframes: 30 days, 60 days, or 90 days. The longer the payment is overdue, the greater the negative impact on one’s credit score.
In the case of student loans, however, delinquencies are only reported once they surpass the 90-day threshold. Therefore, when borrowers fall behind on their payments, their scores can drop drastically from no penalty to a severe 90-day delinquency overnight.
Research conducted by the New York Federal Reserve Bank indicates that a new student loan delinquency appearing on a borrower’s credit report can lead to a staggering decrease in their credit score by over 150 points, depending on their initial score.
For borrowers whose scores are below 620, a delinquency can cause a drop of 87 points. Conversely, for those with excellent credit ratings of 760 or above, a single delinquency can result in an average setback of 171 points.
FICO’s research suggests that a wave of new delinquencies may be on the horizon, which would further depress the nation’s average credit score. Currently, around 2.7 million student loan borrowers have a delinquency reported, and the consequences have already been severe.
Additionally, FICO reports that another 5.4 million individuals are at serious risk of falling into delinquency, as they have not made a single payment on their student loans this year.
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