A state-by-state look at how well consumers manage their money, based on their average credit scores and household incomes
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Montanans are the best at managing their money while Marylanders are the worst, according to a CreditCards.com analysis that compares credit report data and income.
You might expect people in high-income states to be able to keep their credit scores high, but that’s not always the case, the analysis shows. People in high-income states often have dinged-up finances. On the other hand, consumers in low-income states often earn better credit scores than their more-affluent neighbors.
(See the rankings of all 50 states in the graphic: How states rank for money management)
|BEST, WORST STATES|
FOR MONEY MANAGEMENT
|2. South Dakota|
|3. North Dakota|
|50. Washington, D.C.|
|Based on average credit scores, typical household income. See methodology|
“Credit scores reflect your ability to manage the debt you have, regardless of your assets,” said Rod Griffin, Experian director of education. “Just because you have high assets doesn’t mean you use those funds to pay your bills.”
To measure money management ability, CreditCards.com compared consumers’ average credit scores, from the credit bureau Experian, to their median household income, per the U.S. Census. We then ranked the states by differences between the two: The top states had credit scores much higher than their income. In the middle, credit scores about match income rank. Poor performers had high income, but relatively low credit scores. Differences in state job markets and the age of their population influenced their scores, but didn’t explain all the variations in money management ability.
Why it’s important
Looking at consumers’ ability to handle money can help spot traits shared by effective money managers and not-so-effective ones. So it’s not about packing up and moving to another state for the sake of your credit — which probably wouldn’t help anyway.
The results found that the best money managers were scattered from the Rocky Mountains to the Great Plains and the East Coast. Poor money managers were also scattered across the country, with a concentration in the mid-Atlantic region.
In top-ranked Montana, the $44,938 median household income is well below the national average of $51,849, putting the state at No. 41 for income. But its credit score of 686.5 is 11th best in the nation, far better than its income might lead you to expect. Credit scores in North Dakota, South Dakota, Maine and Vermont also far outpaced their income levels.
What do these top money-managing states have in common? A mostly rural demographic profile that lacks major cities is one obvious trait. In Montana, there is some truth to the stereotype of self-sufficient farmers who prize thrift and distrust debt, one expert on the local economy said.
“We do have a population that is pretty conservative about their personal finances,” said John Rogers, chief business development officer at the state Office of Economic Development. “I think it’s a cultural thing … also probably a more rural thing.”
Montanans’ credit card statements support this view. The average balance of $4,143 is 6 percent below the U.S. average, showing that residents don’t use credit to pump up their modest spending power. Perhaps more important, their average credit utilization rate — how much of the card’s credit limit is in use — is one of the lowest in the nation, at 27 percent. Low card debt and utilization rates — the U.S. average is 30 percent — were the norm at good money managing states.
Rogers brushed aside suggestions that the Big Sky State has fewer financial temptations than glitzier urban centers. “We have plenty of diversions — you can go skiing every weekend if you want,” he said. Montana isn’t known for its shopping malls, but even remote ranchers can overspend on Amazon, 24/7, without leaving the spread.
However, rural financial discipline does get an assist from the state’s healthy economy. While its income is unspectacular, the job market in Montana is among the stronger ones in the nation, with 4.0 percent unemployment, a full point below the national average.
A boost from the invisible hand
“What you’ll see in Montana’s economy is steady-as-you-go,” Rogers said. “We don’t experience the severe highs and lows other states experience.”
We do have a population that is pretty conservative about their personal finances. I think it’s a cultural thing … also probably a more rural thing.
|— John Rogers|
Montana Office of Economic Development
Low unemployment is a trait that many good money management states share. Eight of the 10 states with the best credit scores also had among the 10 lowest jobless rates, U.S. Labor Department figures show. That stands to reason, since unpaid bills and high debt are big demerits on your credit score — and are just the things that laid-off consumers are at risk of.
While there isn’t much you can do about the job market where you live, there are steps to take, knowing that the potential financial damage from unemployment outweighs the benefit of a high income. Money management experts say that a simple savings account provides an important buffer from unexpected drops in income.
High and low
To be fair, the money management scoring system gives affluent states a hurdle to overcome. High-income states need correspondingly high credit scores just to be deemed average performers in terms of money management ability. So it is not surprising if an affluent state does only so-so for money management. But when the score is low, indicating that credit scores aren’t in sync with household income, it is fair to ask why.
So how about it, Maryland? The owner of the lowest money management score on the list has the second-highest household income in the nation, at $69,071. Its credit score, however, lags far behind at 31st in the nation, slightly below the U.S. average of 669.
“Maryland does have some of the highest incomes in the country,” said Nancy McCrea, research and information director at the state Department of Commerce. “But with that comes a higher cost of living as well, depending where in the state you are.”
Maryland’s high living costs include housing that is 10th priciest in the nation, based on median sale prices in mid-2015. Some of its peers among the poorest money managers, neighboring Washington D.C. and Virginia, also have high housing costs.
Maryland does have some of the highest incomes in the country, But with that comes a higher cost of living as well, depending where in the state you are.
|— Nancy McCrea|
Maryland Department of Commerce
But so do other places, notably California, New Jersey and New York. Residents there don’t let their high mortgage payments rattle their financial composure. What do they do differently? One big difference is that card utilization is below the 30 percent U.S. average in the good money managing states. In Maryland and other poor money managing states, it is higher — Maryland’s 32 percent utilization rate is eighth highest in the nation. Card utilization is an important factor in credit scores, with higher utilization rates dragging down your score. Loading up on card debt is obviously not a good strategy for coping with higher living costs — especially not in the longer run.
Credit scores tend to get better with age, as younger people have less time to establish a credit history, so states with older populations tend to score better for money management. However, this factor doesn’t explain all the gaps between states’ money management ability either. Only three of the 10 oldest states rank in the top 10 for money management, while four of the youngest states are in the bottom 10. Meanwhile, some younger states such as North Dakota are top money managers, while older states such as West Virginia garner low scores.
Boom and bust
In some poor-performing states, residents aren’t entirely to blame for their money management missteps. Alaska and Texas, two of the bottom-five money managers, are also big energy producers, and their economies are suffering because of it. While most of the nation sees job growth, the big energy producers have lost jobs since oil prices began to plunge in the summer of 2014. Their relatively heavy credit card debt — Alaska is No. 1 — may be partly a response to lost income.
“Alaska is basically in a depression right now,” said Michael Sullivan, director for education at Take Charge America, a credit counseling service that is registered to help debtors in Alaska and Texas, as well as other states. “Say you work in the oil fields; you’re used to working 60 hours a week, now you’re working 30 hours a week,” Sullivan said. “That does happen — there isn’t a whole lot you can do about it.”
North Dakota, whose economy boomed with shale oil development, has managed to avoid the rise in unemployment that other energy-intensive states are seeing, as already-funded construction and development projects run their course. But the state’s enviable 2.7 percent jobless rate is expected to begin rising if oil prices remain below $50 a barrel — and that will probably pull its No. 2 credit score down a few notches. Texas, on the other hand, has seen unemployment rise half a percentage point since mid-2014, despite its large and diversified economy.
“When you’re spending a certain amount each month it’s hard to change that amount quickly,” Sullivan said. “Your house payment is fixed; you need groceries — most people compensate with debt.” It’s wise to have savings to cushion the hard times, especially in a volatile industry, he said, “but none of us is immune to the big picture.”
To measure states’ money management ability, CreditCards.com compared their credit scores to their income levels, using VantageScores from Experian’s 2015 State of Credit report and median household income from the U.S. Census, as predicted for 2012-2013, the most recent period available. States’ variances from the national median household income was compared to their variance from the national average credit score. The money management score subtracts a state’s actual credit score from the score predicted by its income level.
See related: Cities with the biggest, smallest debt burdens