Lessons from cities with the best and worst credit scores
Mankato, Minnesota, and Greenwood, Mississippi, far apart physically, financially
Folks in Mankato, Minnesota -- home of the best credit score in the U.S., according to Experian -- aren't wealthier than average. But they're more careful with the money they have.
"People don't have an affinity toward buying on credit," said John Considine, business development resource manager at the area's chamber of commerce, Greater Mankato Growth.
In the college town 75 miles from Minneapolis the typical household makes $41,000 -- about $10,000 short of the U.S. median, Census figures show. The approximately 40,000 residents shop, dine out and see movies about as much as other Americans, research from the chamber says. They're just less apt to put the bill on their credit cards.
Residents are 23 percent less likely than average to charge more than $1,000 a month, according to survey data published by the chamber. The $3,429 average credit card balance is second-lowest of 200 cities studied by Experian. Residents "don't like to spend beyond their means," Considine said.
Experian, one of the big-three keepers of credit reports, published its annual look at the credit of U.S. consumers on Nov. 18. Based on credit reports of 15 million people, the company's State of Credit study portrays a consumer economy that continues to gain strength as the 2009 recession recedes further into the past.
"Consumers are at least feeling more confident in the economy, and their ability to manage new debt," said Rod Griffin, Experian director of public education.
The average VantageScore, the credit scoring system developed by the large credit bureaus, rose 2 points from last year, to 666. (VantageScores range from 300 to 850.) People are also taking on more debt, with the number of general purpose cards up 21 percent, Experian said. Average debt grew by $632, reaching $28,496. The debt figure, drawn from the year's second quarter, includes credit cards, auto loans and student loans, but excludes home loans.
|10 CITIES WITH BEST CREDIT SCORES|
|5||Fargo, North Dakota||699|
|7||Green Bay, Wisconsin||698|
|8||Sioux Falls, South Dakota||697|
|9||Cedar Rapids, Iowa||697|
|10||La Crosse, Wisconsin||696|
|10 CITIES WITH WORST CREDIT SCORES|
|7||Las Vegas, Nevada||632|
|Source: Experian 2014 State of Credit study. Ranks use VantageScore credit score data, which uses a range of 300-850, with higher scores denoting better credit.|
"An increase in scores means that on average, people are able to repay the debts they're taking on," Griffin said.
However, while some metropolitan areas such as Mankato -- VantageScore 706 -- lead the trend, others are slipping down the scale of creditworthiness.
In Greenwood, Mississippi, which has the nation's lowest average VantageScore at 609, late payments are creeping up and credit scores are dropping. Even though residents of the historic cotton center on the Yazoo River have about $1,000 less debt than the U.S. average, their collective credit score fell by 2 points over the year.
The two cities hold a lesson for consumers about how scores work. "Credit scores really aren't about how much debt you have," Griffin said. "What they really reflect is how well you manage that debt."
People in Greenwood typically have half as many credit cards as those in Mankato, but they use one-third more of their available credit limits, Experian data show. And while their average debt load of $27,475 is just $992 higher than in Mankato, they are four times as likely to make a late payment.
Where the scores are
There is more to regional differences in credit than individual financial discipline, though. Clusters of high- and low-performing cities in different regions of the country point to economic differences that drive the split in credit scores. Mississippi, with an unemployment rate of 7.7 percent -- and the nation's highest poverty rate -- has three of the lowest-score cities in Experian's study. At the other end of the spectrum, Minnesota, with 4.1 percent unemployment, has the top four performers.
"Over the last several years with the surveys, where we see high unemployment rates we typically see poorer credit scores," Griffin said. Economics are at least part of the reason why cities in the South persistently have among the lowest credit scores, he said, while Midwestern cities historically perform better.
In Las Vegas, the largest city on the list of 10 lowest credit scores, households are still recovering from the collapse of the housing bubble, said Stephen Brown, director of the Center for Business and Economic Research at the University of Nevada at Las Vegas. About one in four mortgages remains underwater, he said, meaning the debt is greater than the value of the home.
"We had the biggest housing boom of any city in the country, and the biggest housing bust," Brown said. The damage is reflected in the state's 7.7 percent jobless rate, a third larger than the national average, as home construction remains stagnant.
What about regional stereotypes, such as Vegas high-rollers tossing bills on the blackjack table while thrifty Midwesterners hold on tight to their wallets? Is there an element of truth behind the cliches that influence credit scores?
|Average credit card balance|
|Average number of credit cards|
|Average utilization rate|
|Source: Experian State of Credit survey. Number of credit cards and balance data include only general-purpose cards.|
Griffin said that average scores do tend to be lower in gambling centers. But there's not much evidence that regional habits or traits play a role in financial responsibility.
For example, cold temperatures may keep people from going out and spending money at times, but the data isn't there to prove that the weather helps northerners control their budget. "There are all sorts of things we could speculate about," he said, "but we don't have a way to get at that in this survey."
Industry and the blues
The cities with the highest and lowest scores are as far apart culturally as they are geographically. Greenwood is known for producing cotton and music, with markers on the Mississippi Blues Trail commemorating B.B. King and Robert Johnson. Seven-hundred miles north in Mankato, where the average high temperature in January is 23 degrees, a branch of Minnesota State University sends a stream of educated workers to specialized factories such as Kato Engineering, maker of high-tech electric equipment that powers the Palmer Station research post in Antarctica.
"We're fortunate to have MSU here," Considine said.
Like employment, education is an important marker for a region's economic strength. Areas with low education tend to have low credit scores as well. In Mankato, 45 percent of adults have an associate's degree or higher, versus 23 percent in Greenwood.
While high income isn't necessary for a good credit score, the low paychecks that Mississippi residents draw make it harder to keep up with bills. In Greenwood, where median household income is $28,322, one in three residents are below the federal poverty line, according to Census data.
The local economy is beyond your control, but your credit score is up to you, Griffin says. Year after year, the survey finds that the best predictors of an area's credit score are the rate of late payments and the average utilization rate or how much available credit is in use. These are big factors that make up individual scores.
Rather than worry about the ins and outs of credit strategies, Griffin recommends two fundamental habits. "If you pay your bills on time and keep your balances low, you'll have good credit scores."
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