How Falling Credit Scores Impact The Housing Market

There are many factors that influence the housing market, from interest rates and housing inventory to the strength of the job market and the overall health of the economy. One factor you may not consider, however, is the impact of credit scores. Lenders rely on credit scores to determine how risky it is to approve a loan. Recently, scores have been falling—at their fastest pace since the Great Recession—a trend that could have an impact on the country's housing market.

For a decade, Americans' credit scores were on the rise but that trend has recently reversed, with scores falling to 715 in 2025 from 718 in 2023, according to FICO, which tracks consumer credit risk in the U.S. A broad decline in credit scores is a sign that people are struggling to manage their debt. This could pose a big problem for the housing market, which depends on people borrowing money to purchase homes. Falling credit scores translates to fewer people able to able to qualify for mortgages. Those who do qualify may be limited to smaller loans, or face higher interest rates, lowering their purchasing power and negating recent positive news for homebuyers that mortgage rates are trending downward. 

When fewer people are able to qualify for mortgages, overall demand for homes falls. And when buyers can only secure smaller loans, it puts downward pressure on home prices. The result is a broadly weaker housing market. Falling credit scores can also impact the rental market—though in the opposite direction. If fewer people are able to obtain mortgages and purchase homes, demand for rental properties rises, which pushes rental property prices higher.

While declining average credit scores could have implications on the overall housing market, one group of buyers is likely to be disproportionately impacted: Gen Z. According to FICO, 14% of Gen Z borrowers have seen their credit scores drop by more than 50 points over the past year. On average, Gen Z saw a 3-point drop, larger than any other generation. That's a signal that Gen Z is unlikely to make strides in the housing market any time soon. Much of Gen Z's credit issues are due to high student loan debt. Recently, the government began collecting Federal student loans and reporting delinquencies  after a five-year pause prompted by the pandemic. This has made things worse for Gen Z, which had already been largely sidelined in the housing market due to the high cost of home ownership.  

For those hoping to buy a home but struggling with a weak credit score, hope is not lost. There are steps you can take to increase your homebuying purchasing power such as lowering your debt-to-income ratio. Cut back on spending where possible and set up automated savings so a some of your paycheck gets socked away each pay period. Try to pay bills on time and, when possible, pay off your credit cards in full to help increase your credit score. While there isn't an ideal credit score to buy a house, 620 is generally considered the minimum to qualify for a mortgage, according to Quicken Loans. Regardless, you should strive to boost your score as much as possible, which will in turn boost your chances of securing a mortgage and access the lowest interest rates available.