A slowing economy hits consumers in multiple ways. One impact is that it can be harder to get credit. Young adults — today’s Gen Z — are most at risk.
In a slowing economy, certain conditions have historically affected young adults the most. These may be coming into play now, but there is an added twist this time. Soaring default rates on student loans may make it especially hard for today’s young adults to get and retain access to credit.
To navigate this environment, it helps to recognize what lenders look for when evaluating credit applicants. It also helps to take steps to build a credit score that’s strong enough to withstand a rough economy.
Key takeaways
- A cooling economy: Following the weakest year for job growth since 2020, lenders are raising credit standards, making it harder for young borrowers to qualify for new accounts.
- The student loan “cliff”: The resumption of federal student loan reporting in 2025 has caused one in seven Gen Z borrowers to see their credit scores drop by 50 points or more.
- High vulnerability: Due to thin credit files and less job seniority, Gen Z is currently experiencing the sharpest decline in average credit scores of any generation.
- Strategic recovery: Building credit during a downturn requires intentional steps, such as using secured credit cards, becoming a credit card authorized user, and leveraging Income-Driven Repayment (IDR) plans to protect payment history.
Economic headwinds create more credit risk
Your ability to get credit cards and loans depends on a lot of individual factors. However, there are also general economic conditions that make it easier to get credit at some times than at others.
After all, a strong economy can be a rising tide that floats all boats. If people have little trouble finding work and wages are growing, borrowers have an easier time paying their debts. At those times, lenders are more likely to approve credit applications
In contrast, if jobs become harder to find, more consumers find themselves falling behind on their bills. That’s when lending gets risky. In response, lenders set higher standards for who can get credit.
Unfortunately, the economy seems to be tilting towards the latter scenario.
Weakening job market
There are many ways to measure the strength of the economy, but the job market is where the rubber meets the road. Personnel decisions by companies reflect the health of their business; in turn, employment allows consumers to funnel money back into the economy.
Unfortunately, current indicators suggest a cooling trend:
- Sluggish growth: Job growth in 2025 was the weakest it has been since the 2020 pandemic.
- Increased competition: The number of job seekers per opening has climbed steadily, now more than doubling over the last three years.
- Rising unemployment: Both the unemployment rate and the average duration of joblessness are on the rise.
- Long-term struggles: The number of people out of work for at least six months has spiked by more than 25% over the past year.
Rising payment delinquencies
A weaker job market inevitably leads to a struggle with monthly bills. Data from the New York Fed Quarterly Report on Household Debt and Credit highlights a concerning shift in consumer stability:
- Record borrowing: Total consumer debt has now risen for 22 consecutive quarters as people borrow heavily to bridge the gap between income and expenses.
- Severe delinquencies: The percentage of debt balances 90+ days overdue is at its highest point since the early months of the pandemic.
- Credit card stress: Overdue credit card balances have reached levels not seen since early 2011.
Gen Z credit risk is especially high
While the economy is cooling for everyone, Gen Z (ages 18 to 28) is seeing the sharpest decline in average credit scores of any age group. This vulnerability stems from two main factors:
- “Last-hired, first-fired”: Younger employees often lack the seniority to survive corporate layoffs.
- Thin credit files: With shorter credit histories, a single negative event (like a missed payment) has a much more damaging impact on a Gen Z score than it would for an older borrower.
The “student loan shock” of 2025
The biggest driver of recent credit score plunges is the shift in federal student loan policy. Here is how the landscape shifted:
| Period | Policy Status | Impact on Credit Scores |
| 2020 – 2024 | The pandemic pause | Payments were frozen; defaults weren’t reported |
| Early 2025 | Reporting resumes | Overdue payments began appearing on credit reports again |
| Today | The “cliff” | 1 in 7 Gen Z borrowers saw their scores drop by 50+ points |
Why student loans are a “double-edged sword”
Don’t view your loans solely as a burden — they are also your most accessible tool for credit building:
- The risk: Because Gen Z is twice as likely to hold student debt, delinquency is the number one threat to their financial reputation.
- The opportunity: Since these loans don’t require a job or a high credit score to obtain, they are often a young person’s first chance to prove payment reliability to lenders.
BONUS TIP!
If you are struggling with payments, look into Income-Driven Repayment (IDR) plans. Even if your required payment drops to $0, it counts as an “on-time” payment on your credit report, protecting your score while you get back on your feet.
Understanding how lenders look at credit risk
To understand the issue of Gen Z credit risk, it helps to think about how lenders look at risk.
Credit scores take into account a variety of factors. The most important of these is payment history. When student loan delinquency rates soared, Gen Z was especially hard hit. Their credit scores were most vulnerable because they had little other experience with credit to create a positive payment history.
Beyond credit scores, lenders also like to see a stable job history. People who haven’t been on the job market very long won’t have much of a history to show. With unemployment rising, it becomes harder to establish any job history.
Economic instability has a double impact. Individual credit scores may take a hit. Meanwhile, lenders become more cautious and raise their credit standards.
How Gen Z can improve its credit risk profile
Having access to credit is a key element of consumer finances. Getting a credit card can give you the flexibility to manage your cash flow. Borrowing to buy a home or a car can have a positive impact on long-term wealth creation.
So, how can Gen Z overcome today’s obstacles to getting credit? Below are some steps that may help.
1. Don’t shy away from credit – use it in moderation
People often make the mistake of thinking that one way to show financial responsibility is to avoid using credit.
At times, it can certainly make sense to refrain from borrowing. However, in today’s world, it’s not always a practical strategy.
There are certain things, like airline travel and hotels, that are difficult to pay for without a credit card. Also, eventually, you may face larger purchases like a car or a home that aren’t affordable without a loan.
From a lender’s standpoint, avoiding using credit doesn’t make you more qualified. They want to see a track record that shows you can use credit responsibly.
So, don’t avoid using credit altogether. Use it in small amounts, but regularly. Before you borrow, have a plan for how you’ll make your payments on time. This will allow you to steadily build the type of payment history that lenders want to see.
2. Use a secured card to build credit
A secured card requires you to keep some money on deposit with the card issuer. This may be a little inconvenient. However, it gives you a chance to show you can use credit and make your payments on time.
If you do that, it shouldn’t be long before you can qualify for a conventional credit card and get your security deposit back.
3. Become an authorized user on someone else’s card.
If someone is willing to make you an authorized user on their card, you can start building a payment record without having to qualify for credit on your own.
If you’re an authorized user on a credit card, that account will be reflected on your credit report. The key is to make sure that you become an authorized user on the account of someone who uses credit responsibly.
4. Shop around for credit cards catering to people with weak credit qualifications
While most credit cards require at least fair credit scores, there are dozens available to people with poor credit or even no credit score.
A credit card you can get under these circumstances is likely to have a low credit limit and a high interest rate. However, if you use it responsibly, it can be a starting point for building a credit record that allows you to qualify for a better card.
5. Look at student loans as an opportunity to build credit
Often, a young person’s first experience with credit is a student loans. Understandably, many people come to view these loans as a burden. However, you can also look at them as an opportunity.
Government student loans are available to people with no job and no credit history. That makes them an easy way to get credit for the first time.
Student loans also offer user-friendly payment terms such as income-driven repayment plans. Even if you’re not making much money after you get out of school, if you apply for one of these programs, you can often get affordable payment terms. That makes it easier to start building a positive credit history.
The economy and the situation with student loans present financial challenges to Gen Z. Taking steps to build a positive credit history can empower you to meet those challenges.
