Congressman-elect Maxwell Frost, who will be the first Gen Z Member of Congress, said last week that he was denied an apartment in Washington, DC because of his poor credit. Despite his soon-to-be high salary, the significant debt he amassed during his campaign undermined his credit health and left him struggling to secure housing. But Frost’s experience isn’t unique, and it reflects that of many young adults starting to get their financial foothold.

Nearly 1 in 5 Gen Z adults (adults currently ages 18–24) with a credit record in the United States has some type of debt in collections. Young adults are particularly vulnerable to credit card and auto and retail loan delinquencies relative to other adults. And demographic disparities in credit health reflect long histories of structural disinvestment in communities of color, with young adults of color and those living in southern states more likely to hold various types of past-due debt.

Past-due debt has immediate and long-term effects for the financial well-being of young adults and can constrain their ability to build financial security and resilience. To ensure young adults’ future financial well-being, policymakers can better understand how poor credit health harms Gen Z adults and enact policies that help them access necessary resources.

How poor credit health can harm young adults’ financial standing

As in the case of Congressman-elect Frost, poor credit can prevent young adults from securing their preferred rental housing, but it has other wide-ranging effects as well. Because of their thinner credit files, young adults just starting to build credit histories may face higher interest rates and pay more to borrow. With 14 percent of all adults turning to credit cards to cover a financial emergency and others using credit to pay for regular expenses (PDF), higher costs of borrowing can mean Gen Z adults pay more to cover financial needs.

As inflation continues to outpace wage growth and with limited assets to rely on, young adults may especially struggle to make debt payments. Below, we’ve identified three areas where poor credit health can negatively affect young adults.

1. Fewer resources to meet their day-to-day financial needs. Employers and landlords often rely on credit checks, which provide information on consumers’ debt repayment behaviors, to determine which consumers are granted housing and employment opportunities. Consequently, Gen Z adults with poor credit history may face higher security deposits, advance rental payments, or lose out on preferred housing opportunities and the associated application fee altogether. Poor credit can also lead employers to deny jobs to candidates. Given the role of credit in housing and employment, young adults with poor credit may accept more precarious arrangements that make it more difficult to attain financial stability and build stronger credit.

2. Limited future opportunities and economic mobility. Debt constrains the possibilities that people imagine for their future, which means that Gen Z adults with large amounts of debt may be less able to make investments or take needed financial risks to advance future economic mobility. Young adults rely on borrowing to build wealth and access opportunities that enhance their financial resilience, but taking on significant debt during young adulthood can damage long-term credit health and the ability to invest in upward mobility later in life. Homeownership, entrepreneurship, and opportunities for higher education all necessitate good credit health. These trends are especially concerning as racial disparities in debt during young adulthood can contribute to future racial wealth gap trends.

3. Harm to mental health and physical well-being. Adults with high levels of debt may feel anxiety and financial-related stresses and can feel emotionally overwhelmed. The past few years may have been especially stressful for Gen Z adults, as they were three times more likely to say they are experiencing pandemic-related financial stress compared with older adults, and many young adults reported finances as a core source of stress. In tough economic times and with greater barriers to safety net access than older adults, young adults have less to fall back on during emergencies. Young adults with poor credit may struggle to access resources needed to meet their day-to-day financial and food needs and may have to choose between expenses or curtail their consumption, which can lead to elevated financial hardship and spiraling crises that undermine their long-term physical and mental health.

How policymakers can support building Gen Z’s credit health and financial resilience

To address these needs, policymakers can enact policies that support Gen Z’s financial resilience and help them access the necessary resources to secure stable employment and housing and cope effectively with unexpected expenses.

• Protect consumer credit health information. Credit reports provide details on people’s repayment behaviors and indicate whether they have had trouble meeting financial obligations. But these behaviors may not be a leading indicator of employability or renter readiness. Policymakers could limit the role of credit checks in landlord screenings, provide prospective tenants with other ways to demonstrate responsible payments, and ensure employers and landlords who use credit reports provide details on rejections.
• Increase access to information on credit and consumer rights. Regular access to credit reports allows consumers to monitor recorded behaviors. Knowing this information not only influences financial behaviors but also allows consumers to check for accuracy and dispute errors before it becomes a barrier to housing, employment, or other financial products.
• Develop safe and affordable products to build and access credit early in life. Access to youth savings accounts (PDF) and credit-building programs can kickstart healthy financial lives among young people. Local leaders can support the development of youth savings accounts (PDF) through investments and partnerships that connect young people to banking products and asset building. Policymakers can also help residents improve, establish, or rebuild credit through alternatives to credit scoring and rent reporting programs.
• Invest in asset building programs that provide buffers against economic shocks. Young adults, particularly young adults of color, have constrained access to financial resources to cope with an economic shock. By helping build assets early in life through baby bonds and Child Development Accounts, policymakers can give young adults the resources they need to be resilient in the face of disruptions.

Congressman-elect Frost’s experience highlights the need for policies that strengthen Gen Z adults’ credit heath and financial resilience, so they can meet their financial needs now and into the future.