Rising Credit Delinquencies Among Gen Z and Lower-Income Consumers Signal Financial Strain

Gen Z and Lower-Income Consumers Face Rising Credit Delinquencies

Recent data from VantageScore reveals contrasting trends in credit delinquency rates across income levels and generations. While higher-income and middle-income households show signs of improvement, lower-income consumers are experiencing a persistent rise in delinquency rates.

Higher-income households, defined as those earning $150,000 and above, have seen delinquency rates stabilize and even decline over recent months. Rikard Bandebo, VantageScore’s chief economist, attributes this improvement to better income growth and access to alternative credit sources like home equity, which provide financial cushioning. Middle-income households continue to see rising delinquencies but at a slower pace, increasing around 3 to 5 percent year-over-year.

In contrast, lower-income households face significant challenges in managing credit payments. Their delinquency rates remain high at 7 to 9 percent, which marks a reversal from previous years when their increases were less severe than other groups. According to Bandebo, these consumers lack sufficient assets to offset unexpected expenses, causing deeper financial stress when bills arise.

Examining generational differences, Gen Z has exhibited some of the highest delinquency rates among age groups. However, recent months show a decline, likely due to adaptive behaviors such as living with parents and cautious spending habits. Still, student loan obligations heavily impact Gen Z, affecting their overall credit health and spending capacity. Bandebo notes that consumers burdened by student loans often cut back spending in other areas as a coping mechanism.

When looking at credit product types, delinquency rates are notably elevated in several categories. Auto loan defaults have reached historic highs, surpassing previous post-financial crisis levels. Student loan delinquencies remain extraordinarily high, roughly double pre-pandemic averages since repayments resumed. Credit cards and personal loans also experience increased delinquency rates. However, mortgage-related delinquencies stay comparatively low, far below levels observed in the 2010s.

1. Higher-income households show improving delinquency trends.
2. Middle-income households face slowed growth in delinquencies.
3. Lower-income consumers struggle with sustained high delinquency rates.
4. Gen Z delinquencies are high but trending downward.
5. Student loans, auto loans, and credit cards have elevated default rates.

These findings highlight ongoing disparities in credit health across income levels and generations. Lower-income consumers and younger borrowers face mounting challenges, even as wealthier groups regain financial stability. The data underscores the importance of targeted financial support for vulnerable households navigating an increasingly complex credit landscape.