In 2025, national credit scores experienced a decline, with the average decreasing to 715. This represents a three-point decrease from 2023, marking the end of a decade-long upward trend. Generation Z consumers were most affected, with their average score now at 676, a significant year-over-year decline not seen in other age groups for several years. What factors contributed to this decrease, and how is it that Generation Z is still projected to hold the greatest purchasing power in the coming year despite these challenges?
Gen Z are those born between 1997-2012. In a report released by Service Link – “State of the Homebuyer 2025,” 1,526 consumers who either purchased a home or tried to purchase homes in the last four years were polled. Of those, Gen Z, at 55% were the most likely to purchase or refinance if rates continue to go down. Although high home prices and changes in personal financial circumstances pose challenges, interest rates remain the primary obstacle for most prospective buyers.
The decline in credit scores can be attributed to several factors. For most consumers, high credit card utilization and an increase in delinquencies played significant roles. Specifically, for Generation Z, the primary reason for their average score decline was student loan debt, with 34% of individuals in this demographic carrying such debt. During the pandemic, many student loans were temporarily placed on hold, allowing borrowers to postpone payments. Although the original resumption date was set for 2023, a grace period was granted. In May 2025, the administration began collection efforts for outstanding defaulted student loans and started reporting these defaults on credit reports. Approximately five million borrowers were in default, which had a substantial negative impact on their credit scores. While repayment is now required, additional adverse effects, such as wage garnishments for past-due amounts, could further affect borrowers’ financial standing.
Despite these challenges, Generation Z remains committed to pursuing homeownership. According to Tommy Lee, Senior Director at FICO, “this group has the greatest potential for improvement.” Many individuals within this demographic have begun saving and investing at an earlier age. Although student loan debt can pose an obstacle, it is often a temporary hurdle to overcome.
There are two avenues a person with student loan debt could take to help their situation. They could either “rehabilitate” the loan or consolidate it. Rehabilitating the debt involves making affordable, on time payments over a period of months, usually ten. Once rehabilitated the default is removed. The credit history will show any delinquent payments prior to the default but the loan will now be current and no longer past due. By consolidating the debt, all missed payments, and the default will remain on the credit report. Either of these options can be set up by the Default Resolution Group at the Department of Education.
This generation is increasingly exploring alternative purchasing options, such as acquiring homes through auctions. This approach often offers cost savings, a more streamlined process, and the convenience of remote bidding. Additionally, many are considering relocating to suburban areas, which can be more affordable than urban locations depending on the region. There is also a trend toward purchasing smaller homes, as well as co-buying with another individual or couple, which has become a popular strategy among Gen Z homebuyers.
Is there an expectation for the average credit score to improve? Most likely. With the introduction of new scoring models and the inclusion of alternative credit data such as rent and utilities, there is potential for credit scores to rise more rapidly once these new models are utilized.
The primary factors to focus on are delinquencies and outstanding debt, with particular attention to reducing revolving debt. While this may appear challenging in the current environment, careful planning and strategic approaches can significantly contribute to achieving these objectives.