Credit Scores Fall at Fastest Pace Since the Great Recession

The average credit score in the United States has seen a slight decline over the past year, a possible indicator of economic struggles. According to FICO, a leading credit scoring firm, the average credit score for U.S. consumers has dropped from 717 in October 2024 to 715 currently. This marks the first time since 2009, during the Great Recession, that the average FICO score has decreased by two points within a year.

A FICO score ranges from 300 to 850, with a score of 715 considered to be indicative of “good credit.” The unexpected decline in the average credit score has raised concerns as annual increases in credit scores are more common. The recent decline, especially by two points, is uncommon and has sparked worries among financial experts.

The primary reason behind this decline is the increasing number of Americans falling behind on their loan payments. Economist Amy Crews Cutts, in the FICO report, highlighted that delinquency rates on auto loans, credit cards, and personal loans are at their highest levels since 2009. These trends are more aligned with a recessionary economy rather than one in expansion, according to Cutts.

While the U.S. has not officially declared a recession, economists like Mark Zandi are expressing concerns about the likelihood of one in the next 12 months. The economic landscape is becoming increasingly precarious, with various indicators pointing towards a potential downturn.

A significant impact has been observed on the credit scores of Gen Z individuals, born between 1997 and 2012. These younger borrowers have an average credit score of 676, which is notably lower than the national average by 39 points. The average score for Gen Z borrowers has also decreased by three points since last year, primarily due to missed federal student loan payments.

Tommy Lee, a senior director at FICO, predicts that the situation could deteriorate further as more student loan delinquencies are expected in the coming months. Unlike other types of loans, student loan delinquencies are reported only after reaching the 90-day mark, resulting in a sudden and significant drop in credit scores.

Research from the New York Federal Reserve Bank indicates that a new student loan delinquency can reduce a borrower’s credit score by more than 150 points, depending on their initial score. This impact is more severe for borrowers with higher credit scores, potentially leading to a substantial setback.

FICO warns that a wave of new delinquencies may be on the horizon, further dragging down the average credit score nationwide. With millions of student loan borrowers already facing delinquency and many more at risk, the situation highlights the financial challenges faced by younger generations in the current economic climate.