Having a good credit score brings several important benefits. Similarly, poor credit has many drawbacks.
Younger adults just starting to build their credit history often go astray, mostly because they lack experience with properly using and managing credit. Known as Generation Z, these consumers are also taking on more debt than previous generations.
A recent study by credit reporting agency TransUnion found that 22- to 24-year-olds have amassed more debt and had higher debt-to-income ratios than their Millennial counterparts (ages 28–43) did at the same point in their lives.
It’s important to start your credit history on the right foot since it’s usually much easier to build credit than to repair any negative marks on your credit score.
Keep reading for a deep dive into the May 2024 TransUnion report and to learn what some Gen Zers are doing to manage their debt load and polish up their credit history.
Who Are Gen Z?
The Pew Research Center of Washington, D.C. is a global think tank that studies different generational demographic groups. According to the center, Generation Z follows Generation X (people born between 1965 and 1980), though Millennials are sandwiched between Gen X and Gen Z.
Americans who fall under the Generation Z umbrella were born between 1997 and 2012. In 2024, Gen Z will be between 12 and 27 years old. Much of Gen Z is too young to remember the Great Recession, but they had to deal with the unprecedented turmoil caused by the COVID-19 pandemic.
Who Are Millennials?
Millennials were born between 1981 and 1996, making their current ages between 27 and 43 years old. They are currently the largest demographic in the U.S., with nearly 73 million people.
Millennials (technically, Generation Y, but the term Millennial stuck because the demographic came of age near the end of the millennium) are a unique group in that they grew up during the technological revolution that fundamentally changed nearly every aspect of our lives.
Many Millennials were old enough to witness the devastation wreaked on America on 9/11. They were the first generation to use computers to conduct online searches to find jobs and hordes of other information, and they are generally considered the most tech-savvy age group in the country.
As a last note, many Millennials came of age during the Great Recession of the late 2000s, an event that likely sharpened their values regarding personal finances and debt.
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A Close Look at Gen Z’s Credit Usage
To make accurate comparisons between generations, TransUnion examined the credit data of people ages 22–24 exactly 10 years apart. The study looked at credit data for 6.3 million Millennials in the fourth quarter of 2014 and 7.2 million Gen Zers in the same quarter 10 years later.
TransUnion also directly surveyed 614 Gen Zers and 623 Millennials for some first-hand perspective on their credit situation, and it also conducted interviews with consumers under the age of 29 to delve deeper into their feelings about using credit and taking on debt.
Key findings in the TransUnion survey
The study contained many important findings, most of which pointed toward increased debt for Generation Z, ages 22–24, compared to Millennials of the same age.
Millennial & Generation Z Debt Comparison
Additionally, nearly 84% of Generation Z consumers used credit cards in the fourth quarter of 2024 compared to 61% of Millennials. On a positive note, just over one-third of Gen Zers had student loan debt compared to nearly 50% of Millennials.
Charlie Wise, senior vice president and head of global research and consulting at TransUnion, noted that the performance of Gen Z borrowers is down across numerous credit products compared to Millennials when they were the same age. “While inflation and interest rates remain elevated, Gen Z consumers need to be particularly cautious in how they use and manage their available credit given the relative youth of their credit profiles and lack of a robust historical track record,” Wise said in the report. “Establishing a foundation of strong credit performance will be important as this emerging segment looks to expand their credit wallets to meet their future needs.”
Why Does Gen Z Have More Debt than Millennials Did at the Same Age?
One of the main similarities between Gen Z and Millennials is that both came of age during unprecedented economic turmoil. For Gen Z, it was the coronavirus that almost completely shut down the U.S. economy in 2020, followed by several years of record-high inflation. For the latter, it was the worst recession since the Great Depression.
According to the TransUnion study, three-quarters of Gen Zers said the COVID-19 pandemic negatively affected their personal finances, while 60% of Millennials said the Great Recession hurt their financial standing.
The result of both unprecedented events manifested quite differently, though. Many Millennials were graduating college and entering the workforce when the recession hit, and they had few job options just as their first student loan payments were coming due. According to the Bureau of Labor Statistics, unemployment for people aged 16–24 peaked at nearly 20% in April 2010.
The lack of income and subsequent penny-pinching could be a major reason why Millennials took on less debt from ages 22 to 24 than Generation Z.
However, Gen Z faced an entirely different set of circumstances. The aftermath of the pandemic resulted in rising inflation and escalating costs of goods and services. Gen Z consumers who are just entering the workforce from college are usually at the low point of their ability to earn money, and as a result, many have turned to their credit cards to offset the negative financial impact of rising costs for everything from gas to groceries.
Importance of Building and Managing Credit
Building and maintaining a strong credit score brings a host of benefits for consumers of all ages.
- Building and maintaining a strong credit score brings a host of benefits for consumers of all ages.
- Better terms for auto, home, and personal loans
- Lower interest rates and higher limits on credit cards
- Easier approval when seeking new lines of credit
- Easier to get landlord approval when renting a house or apartment Reduce or eliminate security deposits from utility providers for water, power, and natural gas service
In addition to the many financial benefits, having a healthy credit score also brings a sense of pride.
The downside to good credit? Those annoying credit card offers that pop up in the mailbox each week.
It can be difficult for young adults to build a strong credit history. Here are five easy ways you can begin your credit journey on the right foot.
How One Gen Z Consumer Manages Her Credit
Personal financial literacy isn’t taught in school. Instead, it falls on the shoulders of parents to educate their children and set good examples about using credit and taking on debt.
Grace Ericson, a 24-year-old from Reno, Nev., considers herself an outlier when it comes to debt and credit usage. Unlike many Gen Zers, Ericson graduated college (University of Nevada, Reno) without any student loan debt. Ericson said she lived at home for 18 months to save money while in college.
“A lot of people my age and a lot of people I know are taking on debt,” Ericson said. “Although I was able to leave college with no student debt, that’s few and far between for most people my age.”
Ericson’s current debt load includes a mortgage and auto loan, but she has no credit card debt. She credits her parents with instilling smart financial values and acknowledges that her financial situation improved greatly when she landed a good-paying job as a civil engineer right after graduating.
“My parents taught me that credit card debt is something you don’t want to get involved with and to never buy anything that you can’t pay off, except for cars and houses,” she said.
“Many people my age feel obligated to go to college and get a degree, and they take on student loans,” Ericson added. “However, when they graduate and start working, they aren’t getting paid enough to pay off those loans. That’s a big issue people my age are running into, but I was lucky to get a stable, good-paying job.”
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5 Ways College Students and Young Adults Can Build a Positive Credit History
Gen Z may be taking on more debt than their Millennial counterparts, but that doesn’t necessarily mean young adults are in a debt spiral that will end with ruined credit. Follow these five steps to begin building and improving your credit score.
Routinely monitor your credit score
TransUnion, Equifax, and Experian are the three main credit-reporting agencies. Consumers are allowed a free credit report every 12 months from each agency (scores will vary among the agencies).
Financial institutions and credit card companies also offer free credit-score checking services when using online banking or mobile apps. Knowing your credit score is the first step toward improving it.
Keep a budget
The best way to manage your finances is to track expenses and income. It takes vigilance and dedication, but it can help prevent you from going astray and making credit card purchases you can’t pay for, which can negatively impact your credit score. Additionally, the amount of debt you owe accounts for 30% of your credit score. You Need a Budget (YNAB) and the Albert App are some good ones to check out.
Pay your bills on time
Payment history is the single-largest factor (35%) in determining your credit score among all three credit bureaus. Late payments on credit cards and installment loans can quickly destroy your credit rating – and they will stay on your credit report for seven long years.
If you don’t have the funds to pay bills on time, contact your creditors to try and work out a solution.
Consider a student credit card
Gen Zers who are just starting out on their credit journey may find it difficult to access any type of credit because they don’t have any credit history. Many banks and credit unions offer credit cards tailored to students. Used correctly, these cards can be instrumental in building a positive credit history.
Seek out student loan forgiveness
Student loans show up on your credit report. Teachers, government employees, medical professionals, and some others may qualify for student loan forgiveness. Significantly lowering your total debt load will likely boost your credit score.
In almost every scenario, taking on new debt will result in a negative impact on your credit report. Managing credit card usage can be difficult, though, even for older working professionals. According to one Gen Zer, the journey to making sound financial decisions starts at home.
Putting It All Together
Credit can be a good thing when it’s used correctly.
A good credit score helps set the stage for successful early adulthood by allowing you to purchase a car and home and reach many other major financial goals.
It’s important to start off on the right path, though reaching out for some of those big-ticket goals before your wages are in line with your desires could create financial instability and negatively impact your ability to use and build credit.
Generation Z faces a difficult road ahead due to the high cost of goods and services.
While it may be tempting to put dinner dates and vacations on credit cards, amassing unserviceable debt can lead to financial failure.
Holding off on big purchases and keeping a keen eye on your finances and credit usage, meanwhile, can set the stage for a strong and sustainable financial future.
