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The average credit score for Gen Zers rose by 13 points last year—here's why their scores went up

CNBC Select spoke with Experian's Rod Griffin about Gen Z's credit behaviors.

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At 24 and younger, Gen Z is the youngest cohort of consumers out there.

Yet despite their inexperience and being new to the market, there are promising signs of how the youngest Americans are managing their credit year over year. Experian's 11th annual State of Credit report found that Gen Z has lowered their credit utilization rate (their balance-to-limit ratio) and decreased their number of missed payments compared to last year.

In fact, Experian's data shows that Gen Z has had fewer missed payments than all generations, except the Silent Generation (the oldest cohort, ages 74 and above). That's one of the reasons why their average score rose by 13 points from 641 in 2019 to 654 in 2020.

Given that credit utilization rates and payment histories are the two most important factors making up consumers' credit scores, Gen Z borrowers are arguably on the right track.

To get a better idea of the average Gen Z consumer, we include below a snapshot of Experian's data highlighting this generation.

Experian State of Credit Report: Gen Z

Experian 2020 findings Gen Z
Average VantageScore®654
Average number of credit cards1.64
Average credit card balance$2197
Average revolving utilization rate30%
Average number of retail credit cards1.64
Average retail credit card balance$1124
Average 30–59 days past due delinquency rates1.6%
Average 60–89 days past due delinquency rates1.0%
Average 90–180 days past due delinquency rates2.5%

CNBC Select spoke with Rod Griffin, senior director of public education and advocacy for Experian (one of the three main credit bureaus), about Gen Z's borrowing behaviors.

Overall, younger consumers are showing responsible credit management trends. Here are two ways their performance has changed year over year, and what Griffin says they should be on the lookout for.

1. Increase in credit cards and comparably low credit card debt

According to Experian's State of Credit report, Gen Z consumers have increased the number of credit cards they carry and have an overall credit card debt balance of $2,197. That's compared to Gen X, who have the highest average credit card balance at $7,718.

What Gen Z should be on the lookout for: When you're young, building credit is essential because it takes time. Since younger consumers are generally less credit experienced and may have thinner credit files compared to older borrowers, the first step is to get a credit card, charge modest expenses and pay them off in full by the due date.

It's good that Gen Z is already establishing credit by getting approved for credit cards. Additional credit cards increase their overall credit limit, which is likely the factor contributing to their lower utilization rates. Low balances and high limits are the recipe for a low utilization.

Just be wary of what too much credit card debt can do to your finances and your credit score: Credit card issuers charge notoriously high interest whenever you carry a balance, making your debt balloon quickly.

"What's important for Gen Z, and all borrowers, is to be proactive and to understand the factors from their credit reports that influence their credit scores," Griffin says. "Learning about your credit history, checking your credit report often and using the tools available to you, like *Experian Boost™, can help you improve your credit standing and your financial health in the long run."

Keeping the risks of carrying credit card balances in mind, having a long credit history to show for as they age will help Gen Z consumers get approved for new credit cards and secure good loan terms.

Instantly raise your credit score: Experian Boost™ is a free feature that lets you add your on-time phone, internet, cable, utility (gas, electricity, water) and streaming payments like Netflix®HBO™, Hulu™ and Disney+™ to your Experian credit report. According to its website, average users receiving a boost reported a 13-point increase in their FICO® Score.

2. Decrease in credit utilization rate and missed payments

Experian's State of Credit report shows that, since last year, Gen Z has decreased their credit utilization rate and number of missed payments.

What Gen Z should be on the lookout for: Like we mention above, the decrease in Gen Z's credit utilization rate is likely a result of having a higher credit limit overall since they have opened more credit cards over the past year.

While we saw that Gen Z has increased their credit card debt, it's important to point out that their number of missed bill payments has gone down. It's crucial to pay your bills on time, and in full if you can.

"Especially in the current environment, I encourage Gen Z to contact their lenders if they believe they're going to miss a payment and to check their credit reports regularly," Griffin says. "Ideally, you would pay your credit card balances in full each month."

When it comes to Gen Z's average revolving utilization rate, the 30% is a 6-percentage point decrease from 2019. While this is a good start, it will need to continue to decline for Gen Z to see an improvement in their credit scores.

"To safeguard your score, you should aim to keep your utilization in total and for each card as low as possible," Griffin says. "As your utilization ratio approaches 30% of your limits, your scores will begin to decrease much more rapidly."

The standard rule of thumb is to keep your utilization rate under 30%, and below 10% for the best credit score.

Learn more:

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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