Generation Z and Credit in 2023

Generation Z: Who Are They?

You’ve likely been informed of the recent arrival of the newest generation into adulthood, commonly referred to as Generation Z. The Pew Research Center defines this generation as those born after 1996. (The end date may be 2012, but that remains an open question among demographers.)

We went through these seemingly interminable questions about millennials two decades ago, so if history’s any guide, get ready for much, much more speculation about Generation Z’s wants, needs, characteristics and behaviors. While Experian can’t tell you (much) about Gen Z’s tastes in music, TV and fashion, we can tell you a little about what kind of financial start they’ve gotten in one of the more unique economic periods in recent history.

This analysis includes the leading edge of Generation Z, those who were between 18 and 25 in the third quarter (Q3) 2022, which represents about 28 million of the 72 million Gen Zers in the U.S. overall. So there’s a lot of Gen Zers (or zoomers) already adulting, with many more soon to follow.

Average Gen Z Credit Scores Are Already Good, and Likely to Improve Over Time

To begin with some good news: The average FICO Score among Generation Z was 679 in Q3 2022. That’s in the “good” range, which includes scores between 670 and 739.

Source: Experian data from Q3 of each year

While it may seem a bit distant from the national average FICO Score of 714, it’s still quite an achievement, as length of credit history is a significant component in calculating a consumer’s score. Remember that even the oldest among Generation Z has only been old enough to get a credit card of their own for eight years. With time on Gen Z’s side, their average FICO scores are likely to improve with age.

Most Gen Z Consumers With a Credit Report Have at Least One Credit Card

As of Q3 2022, 86% of Gen Z consumers who have a credit score have at least one credit card, according to Experian data.

Generation Z: Number of Credit Card Accounts

But let’s put this in context: Compared with other generations, a larger percentage of Generation Z don’t have a credit report or credit score. It could simply be that some of Generation Z haven’t yet taken enough of the financial steps to get on lenders’ radar and don’t have either a credit score or a credit report. They are, at least for the moment, credit invisibles.

Experian Go is a free program that can assist consumers of any age without a FICO Score to start and build a credit history, which is the first step to potentially obtaining credit from lenders.

Gen Z Has an Average Credit Card Balance of $2,854

As of Q3 2022, Generation Z carried an average credit card balance of $2,854—much lower than the $5,910 average credit card debt among all consumers. Of course, these are very new credit histories in most cases, with little activity on them, so far. (Decreased consumer activity during the pandemic also resulted in less-than-typical credit card spending among all consumers.)

Average Credit Card Balance of Generation Z

The average credit limit extended to Generation Z in Q3 2022 was $11,290, which means the generation’s credit utilization ratio averages around 25%—a good sign. Keeping utilization below 30% generally does less damage to one’s FICO Score.

However, these credit card balances are relatively new, and adulthood quickly becomes expensive, as the generations who preceded Gen Z can attest. But consumers who manage their credit responsibly can expect their credit limits to increase over time, which can help their credit utilization.

Gen Zers in the more populous states of California, New York and Texas carry higher credit card balances than in other states, perhaps because these states have larger economies that better support young people starting careers. Their average credit card balance differs from that of all generations, which, when broken down by state, correlates more strongly to income than population size.

Average Credit Card Debt Among Gen Z Consumers by State

Younger Drivers Have an Average Auto Loan Balance of $19,223

Generation Z has gotten behind the wheel in a big way, and, unlike most other types of consumer debt, their auto loan balances are comparable to older consumers’. After all, Gen Z is facing the same impediments as other car buyers: a very thin inventory in both new and used car lots, which has increased car prices over the past three years.

Average Auto Loan Balance

Gen Z’s Average Student Loan Balance of $20,468 Will Soon Increase

Generation Z will likely be the most highly educated generation in history, based on recent data, despite the interruptions during the pandemic earlier in the decade. In 2020, 57% of college age Gen Zers were enrolled in college, according to Pew Research.

So far, compared with the overall average student loan balance for all generations, Generation Z student debt is much smaller. Unfortunately for them, their average student loan balance of $20,468, while only half of the overall average balance of $39,000, comes with some caveats.

Average Student Loan Balances

First, not all students with loans have begun to repay them. The student loan pause, in effect since March 2020, is one obvious reason some aren’t yet making payments. But even after payments resume later this year, not all Generation Z will make monthly payments: Many younger people are continuing their studies or haven’t been out of school long enough for payments to begin.

Second, most of Gen Z who plan on earning advanced degrees either haven’t yet entered a program, as they’re still undergraduates, or yet completed their graduate studies. Graduate student loan debt is generally much more expensive than undergraduate debt, and will take longer than undergraduate debt to pay down, as these current students aren’t on track to repay until their late 20s or early 30s—and few have yet reached that point.

We can expect the average student loan balances of Generation Z to increase in the future, but fortunately they’ll have more tools with which to manage monthly payments, like repayment plans based on income and loan forgiveness programs for entering certain types of public service.

Generation Z Leads in Buy Now, Pay Later Adoption

Buy now, pay later is big and getting bigger—about one-half of consumers have used it at least once. It will account for $438 billion in e-commerce purchases by 2025, according to a projection from fintech provider FIS. That’s more than double the 2021 level.

Generation Z is associated the most with buy now, pay later, as those under 35 use this type of financing more frequently than older consumers, according to a survey from the Consumer Financial Protection Bureau.

The buy now, pay later payments consumers make today aren’t yet used in credit scores, but will be on one’s credit report. The distinction is important. While payment history on buy now, pay later purchases won’t change your FICO Score, it can be the first look lenders receive of some otherwise credit invisible consumers, especially younger ones.

The adoption of buy now, pay later among more young consumers may help them obtain traditional credit, like credit cards, more quickly than previous generations who did without. Buy now, pay later providers can help their customers without a credit history to become “credit visible” without impacting traditional credit scores. Buy now, pay later histories will be visible to both lenders and consumers in their core Experian credit reports, and will be a way to show one’s ability to manage these loan payments responsibly.