Sharpest Credit Score Decline Since Great Recession
File - Credit cards as seen July 1, 2021, in Orlando, Fla. (AP Photo/John Raoux, File)
From credit cards to student loans, more Americans are falling behind on their bills — and it’s starting to show in their credit scores.
According to a report from CNN, U.S. credit scores are dropping at the fastest rate since the Great Recession. High inflation, rising interest rates, the return of student loan payments, and the mounting cost of daily life are putting increased financial strain on borrowers.
The national average FICO score declined by two points this year — the steepest drop since 2009 — and marked the second consecutive year of decline following nearly a decade of steady improvement.
“We’ve seen a K-shaped economy,” said Tommy Lee, senior director at FICO, “where those with wealth tied to stocks and rising home values are doing well, and others are struggling with high rates and affordability issues.”
One of the biggest drivers of the recent credit dip: the return of student loan payments. With the end of the pandemic-era pause, millions of borrowers are once again required to make payments — and now face the risk of delinquencies being reported. Between February and April alone, 6.1 million borrowers had a student loan delinquency added to their credit files, pushing the delinquency rate to a record 29% among those expected to pay.
Gen Z is feeling the brunt. Members of this group — who are twice as likely as older adults to carry student debt — saw their average credit scores fall by 3 points. For 14% of Gen Z borrowers, scores dropped by 50 points or more.
“My credit score took a drastic hit because I had to compromise and take a job where I’m severely underpaid,” said 22-year-old Dimitri Tsolakis.
But the financial pressure isn’t limited to young adults. Around 1 in 5 Americans reported skipping or making partial payments on bills in the past year, while nearly half said they’ve cut back on non-essential spending to make ends meet.
Delinquencies on auto loans, credit cards, and personal loans are also climbing, now sitting at or near their highest levels since 2009 — a sign that, according to FICO, is “more consistent with an economy in recession than one still expanding.”
Still, the overall credit picture isn’t all bad. As Reuters noted, the average FICO score remains relatively high at 715, though the report cautioned that this is a lagging indicator. “There are certainly many risks to the future average credit score,” the FICO report concluded.
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