The average American’s credit score is falling. A Wisconsin professor says there are several reasons why.

A recent FICO report reveals the average American credit score has declined for the second consecutive year, most notably among Gen Z borrowers. Delinquencies across auto, credit card, and personal loans are approaching 2009 levels, while student loan delinquencies have seen a sharp increase, with nearly 30% of federal borrowers 90+ days past due, largely due to affordability issues. While the national average credit score remains above 2009 levels and mortgage delinquencies are not as severe, the rapid rise in consumer loan defaults, particularly among younger demographics, indicates increasing financial strain that institutional investors should closely monitor.

Analysis

FICO's recent report indicates a second consecutive annual decline in the average American credit score, with Gen Z borrowers experiencing the most significant decrease. Delinquencies across auto loans, credit cards, and personal loans are approaching levels last seen during the 2009 Great Recession, signaling increasing financial strain across consumer credit segments. This broad deterioration is a key indicator of evolving consumer financial health.

A critical new factor is the "hockey stick" rise in student loan delinquencies, with TransUnion reporting nearly 30% of federal borrowers 90+ days past due, primarily due to affordability concerns. While younger demographics historically face credit challenges, the current environment, exacerbated by student loan repayments and higher interest rates, presents a unique and heightened risk for Gen Z.

Despite these concerning trends, the national average credit score remains notably higher than in 2009, and mortgage delinquency rates are not mirroring Great Recession levels. This suggests a more localized stress within specific consumer credit categories rather than a systemic housing market collapse, though the rapid increase in consumer loan defaults warrants close monitoring.

Key Decisions for Investors

• Investors should closely monitor credit quality deterioration, particularly in consumer lending portfolios exposed to younger demographics and student loan burdens.
• Evaluate potential impacts on consumer discretionary spending and retail sectors, as affordability concerns could curb demand.
• Assess the credit risk profiles of financial institutions with significant exposure to auto, credit card, and personal loans, especially those with higher concentrations of Gen Z borrowers.