Gen Z is averaging higher credit scores than millennials: Is it financial competence or just good timing?

Despite the assumption that financial health improves as one gets older, a recent study by Rocket Loans challenges this belief. Curious about the financial lives of various generations, the company analyzed data from a randomized sample of 40,000 people who obtained personal loans financed through Rocket Loans in the past year. This research found that the Generation Z age group is already averaging higher credit scores than millennials.

Financial health is determined by a few factors such as credit score, income and debt. Generally, with time and experience, one can build their credit, receive higher wages and invest in major assets. So, why is it that the youngest adults in the United States are faring so well against their older counterparts?

Credit Scores By Generation 

Based on the data examined, there may be correlation between older ages and higher financial wellness – which makes sense. After all, the factors that make up a credit score include payment history, making payments on time, credit utilization, length of credit history, new credit and credit mix. As one ages, their credit history grows longer. They typically take on more types of credit and become more responsible with budgeting and paying off debt.

However, the data shows one shocking exception – and it comes from the youngest generation.

This analysis found that the national average credit score is 717. According to the findings, the average credit scores by generation are:  

• Baby Boomers: 739
• Gen X: 713
• Millennials: 708 
• Gen Z: 711  

Baby boomers have the highest credit scores among the generations, with Gen X coming in second, trailing baby boomers by 26 points and falling just below the national average. And, while both Gen Z and millennials fall below the preceding generations, Gen Z is currently outscoring millennials by three points.

The data shows that credit utilization, which makes up 30% of a credit score, may be helping influence these numbers.

How Does Credit Utilization Differ By Generation?

Credit utilization rate, also known as credit utilization ratio, is the percentage of total credit used compared to total credit available (total amount owed divided by total amount available). To find this percentage, you divide the total amount of revolving credit a person uses into the amount of credit they have available. So, if you have a credit card with a $1,000 maximum and you have a balance of $100, your credit utilization ratio is 10%.

Credit utilization rates are based only on revolving credit, which is a type of credit that renews each time it's paid back. Credit cards, personal lines of credit and home equity lines of credit (HELOCs) are all types of revolving credit. This form of credit is not to be confused with installment credit, such as student loans, mortgages and personal loans.

According to the data, Americans have an average revolving credit limit of $36,944. The total credit limit averages by generation are:

• Baby Boomers: $43,268
• Gen X: $39,789
• Millennials: $32,706
• Gen Z: $19,291 

The recent study also found that Americans have about $14,600 in revolving credit debt, according to the data. The average revolving debt for each generation is:

• Baby Boomers: $12,959
• Gen X: $16,819
• Millennials: $13,981
• Gen Z: $7,381 

The national average credit utilization rate is 39.5%, according to our data. These are the average credit utilization rates by generation:   

• Baby Boomers: 30.0%
• Gen X: 42.3%
• Millennials: 42.7%
• Gen Z: 38.3% 

Based on Rocket Loans' data, baby boomers have the lowest average credit utilization rate. As data shows, they have comparatively higher average revolving credit limits. Since baby boomers are at retirement age and likely work with a fixed income, they may be more conscious about spending habits compared to younger generations still in the workforce. Also, baby boomers have been around for longer than other generations, meaning they probably have a better grasp on financial knowledge and responsibility.

However, Gen Z has the second lowest average credit utilization rate, despite having the least amount of life experience and a comparatively low average total credit limit of about $19,291. Gen Z uses about $6,600 less credit than millennials, and almost $9,500 less than Gen X.

How Does Personal Loan Usage Differ Among The Generations?

Another factor of credit scores is the type of credit one has. Creditors like to see a diverse mix of both revolving and installment credit. Personal loans are one type of installment credit and are commonly used to help finance different goals, like consolidating debt, purchasing a vehicle, starting a home improvement project or financing medical expenses.

The average amounts each generation took out for a personal loan are: 

• Baby Boomers: $12,630
• Gen X: $9,226
• Millennials: $14,697
• Gen Z: $14,320 

When it comes to loan purposes, 60.7% of the adult population intended to use the funds for debt consolidation. About 64% of millennials and 61% of Gen Xers reported they were using their personal loans for debt consolidation.

Why Is Gen Z Doing So Well Compared To Millennials?

As many Gen Zers are freshly out of college, they may have not been required to start repaying student loans just yet. In fact, when you're in deferment, your student loan balance may show up on your credit report, but it doesn't really hurt it. On top of that, in response to COVID-19, the CARES Act prohibited the accrual of interest on student loans, both subsidized and unsubsidized, and paused repayment requirements. This gave Gen Zers fresh out of college a little more room to breathe as they started their working lives. This simply means that the youngest adult generation may not have felt the brunt of required monthly payments or the sting of late payments, delinquent balances and increasing loan amounts just yet.

When comparing Gen Z finances to millennials, the effects of the 2008 recession should be considered. It's quite possible that when millennials were 18-26, they were financially set back. After all, in 2008, over 11 million people were unemployed, meaning millennials likely faced unemployment and financial setbacks early in their careers. Furthermore, employers' hiring projections for young adults decreased by nearly 21% between 2008 and 2009, according to the National Association of Colleges and Employers (NACE). This could explain, in part, why millennials, even a decade later, are trying to make up for lost time.

According to a study conducted by CNN Business, many millennials feel as if they could be better off had they not graduated during the 2008 recession. Their generation entered adult life during a period where unemployment rates were at an all-time high, the stock market was rapidly dropping and many companies reduced hiring numbers. For millennials who took out loans to finance their education, this would've been a hard financial hit. New college graduates typically must start paying on their loans less than a year after graduating (typically about 6 months), which could be difficult if they don't have a solid source of income. On top of this, whether they could find a job or not, interest rates gradually accrued more debt balance making it difficult to recover.

Experiencing the consequences of the recession scared many millennials away from taking risks that could have improved their financial health, according to Forbes. After watching the housing market crash in 2008, many young adults were afraid to purchase a home. In the same way, they were also afraid to take on credit card debt and business loans, as they were afraid they would not be able to repay them. Furthermore, it didn't help that many graduated with student loan debt and little to no money saved. The panic and stress brought on by the Great Recession could be a determining factor as to why millennials, and even Gen Xers, are further behind in their finances.

Financial literacy may also play a big role in the strides Gen Z is making. While the youngest adult population was raised in an era where social media had been accessible from a young age, older generations did not have the same pleasantries. Gen Z has had the power of the internet right in their pockets since they were children. From a simple Google search to finance influencers, there is limitless information on the web. However, despite the accessibility of the internet, the study found that 40% of Gen Zers receive financial advice from their parents – the same parents who have felt the brunt of lost opportunities.

It can be concluded that Gen Z has higher credit scores and seemingly better financial health than millennials due to timing and access to educational resources. When compared to people with more debt, possible delinquent balances and credit impacts from student loan debt, it makes sense that Gen Z is outscoring and keeping up with older generations.

Bottom Line: Gen Z Can Learn From The Past To Avoid Financial Insecurity

With marriage, homeownership and children still on the horizon for most of Gen Z, timing and age may be playing a role in why this generation is stacking up so well against its older counterparts. However, the financial state of the country is still uncertain as economists debate on whether there will be another recession. Still, if the trajectory continues to trend upward, Gen Z just might be on the verge of becoming financially well off. Afterall, Gen Z is setting big financial goals despite the hurdles they're facing. They're budgeting, saving, purchasing homes and have already started building credit history – an incredible feat in the current financial climate.  

Methodology

To determine averages across different financial categories between generations, Rocket Loans analyzed a randomized sample of 40,000 closed Rocket Loans clients from the past year of anonymous clients' closed personal loan applications from the past year. All of the aggregated data was pulled on March 14, 2024. For the purposes of this analysis, age generations were defined as Gen Z, age 18-27 (2,009 clients); millennials, age 28-43 (14,058 clients); Gen X, age 44-59 (16,185 clients); and baby boomers, age 60-78 (7,747 clients). Those that fell into the silent generation, age 79-95, were excluded from the dataset because of lack of population size. FICO credit score ranges are based on Experian's VantageScore model.