As the cost of living continues to rise and federal student loan payments make their long-awaited return, more Americans are finding it difficult to keep up financially. According to a recent FICO report, credit scores are falling at the fastest pace since the Great Recession, with many borrowers falling behind on car loans, credit cards, and personal loans.
In 2025, the national average FICO score dropped by two points—marking the steepest decline since 2009. While credit scores remain above their levels during the financial crisis, this marks the second consecutive year of declines, signaling an increasingly precarious financial situation for many households. Younger Americans, in particular, are facing significant challenges, with many grappling with the twin burdens of high student debt and low-paying entry-level jobs.
Gen Z: The Hardest Hit by Credit Score Declines
Generation Z is facing the biggest credit score drop of any age group this year. According to FICO data, the average credit score for Gen Z borrowers fell by three points, the largest decline since the pandemic in 2020. This sharp drop highlights the economic difficulties that many young people are facing as they try to build their financial futures in the face of rising debt and stagnant wages.
“Gen Z is under immense pressure right now, with many dealing with the challenges of student loans and a tight job market,” says Tommy Lee, Senior Director at FICO. “They are more vulnerable to swings in their credit scores because they often lack a long credit history to buffer against these kinds of changes.”
While the stock market continues to reach new heights, Main Street—where the majority of Americans live—remains under significant financial stress. For many, the divide between Wall Street and Main Street is growing, with wealthy investors enjoying strong returns, while others struggle to make ends meet.
Rising Delinquency Rates: A Sign of Financial Stress
FICO’s report also found that delinquency rates on auto loans, credit cards, Credit Scores Drop At Fastest Pace Since The Great Recession and personal loans are at or near their highest levels since the Great Recession. While mortgage and home equity loan delinquencies remain low, the sharp increase in other loan delinquencies signals that many consumers are feeling the strain.
FICO’s analysis suggests that delinquency rates are more in line with those seen during economic recessions than during periods of growth. The overall increase in missed payments on non-mortgage debt is a concerning sign of broader financial stress across the country.
Student Debt: A Growing Burden for Gen Z
One of the primary drivers of financial strain for younger Americans is student loan debt. After the COVID-19 payment freeze ended in May 2025, millions of borrowers are now facing the reality of having their student loans reported as delinquent if they miss payments. The delinquency rate for student loan borrowers has now reached a record high of 29%, according to FICO.
For Gen Z, the impact is particularly severe. About 34% of Gen Zers have student loan debt, twice the national average. The return of student loan payments has hit them hard, with many struggling to balance loan repayments while covering other living expenses.
Between February and April 2025, over 6.1 million consumers saw student loan delinquencies added to their credit files. This has further exacerbated the financial pressure on borrowers, particularly younger ones without extensive credit histories. FICO warns that these delinquencies will likely cause significant fluctuations in credit scores.
Job Market Pressures: Gen Z Faces Tougher Employment Prospects
In addition to the burden of student debt, Gen Z borrowers are dealing with one of the toughest job markets in recent years. Many are struggling to find well-paying positions after graduation, and Dimitri Tsolakis, a 22-year-old recent graduate, illustrates the challenges they face. After spending 14 months applying for jobs post-graduation, Tsolakis finally landed a job at a law firm—but it was a severe pay cut from his previous job as a server.
“My credit score took a huge hit because I had to take a much lower-paying job than I expected,” Tsolakis explained. “I’m focusing on making my car payments and covering basic living expenses, but student debt is always hanging over my head.”
Tsolakis owes $35,000 in student loans but has had to pause payments while focusing on other financial obligations.
The Strain of Managing Multiple Bills
As credit scores drop and debt rises, many Americans are being forced to make difficult choices about which bills to pay. A Federal Reserve Bank of Philadelphia survey from July found that 19% of consumers had skipped or reduced payments on bills in the past year—up from 17% in 2024. Meanwhile, 47% of consumers reported cutting discretionary spending, and 23% had to reduce spending on essentials like groceries and utilities.
To make ends meet, 64% of Gen Z and 61% of Millennials with student loans are relying on credit cards, buy-now-pay-later loans, or personal loans to cover gaps in their budgets. These financial products often lead to higher debt loads, which in turn hurt credit scores even further.
A Heavy Debt Load: Sue Murphy’s Story
Sue Murphy, a nurse in Philadelphia, knows firsthand how overwhelming student debt can be. After taking out $70,000in parent-PLUS loans to help pay for her daughter’s education, Murphy found herself working a second job to keep up with the monthly payments.
“My schedule is 12 days on, one day off—just to stay afloat,” Murphy said. “It feels like I’m working harder than ever, but the debt keeps piling up.”
Murphy had hoped to eventually qualify for Public Service Loan Forgiveness (PSLF) after 10 years of payments, but recent changes to the program under the Trump administration may threaten her eligibility. Despite her best efforts to stay current on her payments, Murphy’s debt-to-income ratio remains high, which continues to negatively affect her credit score.
What Can You Do?
If you’re finding yourself in a similar situation, you’re not alone. Millions of Americans are facing the same financial pressures, and their credit scores are feeling the impact. Here are some steps to consider to help manage your credit and debt:
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Monitor Your Credit – Regularly check your credit score and report for any changes. Early detection can help you take action to correct inaccuracies or prevent further damage.
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Prioritize High-Interest Debt – Focus on paying down high-interest loans like credit cards first. This can help reduce the amount of interest you’re paying and improve your credit score over time.
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Consider Consolidating or Refinancing – If you have multiple loans or high-interest debt, consolidation or refinancing may help lower your monthly payments and make your debt more manageable.
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Seek Professional Help – If you’re struggling to keep up with payments, consider speaking with a credit counselor or a financial advisor to develop a plan that works for you.
Final Thoughts
Credit scores are facing a steady decline, especially for younger Americans, as they grapple with high student debt, rising living costs, and low-paying job opportunities. While the economy may be thriving for some, the financial pressures facing everyday consumers—especially the younger generation—are real and growing.
If you’re feeling the strain, take steps to manage your credit carefully and reach out for help when needed. You don’t have to face these challenges alone.
For more tips on improving your credit and managing debt, visit our Moneywatch section at CreditVana.com.
