San Angelo and West Texas Have Lowest Credit Scores in Nation
SAN ANGELO, TX – At the end of November, Experian credit reporting agency released its seventh annual State of Credit report. According to Experian, this study ranks American cities by credit score and details which cities are the best and worst at managing credit. It also evaluates how members of each generation, from the Silent Generation to Generation Z, manage their credit.
Although the nation’s average credit score is up four points, 669 to 673 from last year, and is only six points away from the 2007 average of 679, which shows positive signs of a recovering economy, the southern states, including Texas, are falling behind. Texas cities rank in the bottom 10 of average credit scores.
Additionally, Experian officials said families in West Texas cities were found “to have some of the lowest credit scores in the nation.”
“Amarillo increased its ranking slightly since last year, but consumers in Lubbock, El Paso and San Angelo saw their credit scores go down,” said Experian officials. “Odessa-Midland’s credit scores ranked 11th lowest in the nation, but three Texas cities scored even worse.”
Overall, Experian’s State of Credit report “examines more than 200 U.S. metropolitan areas to highlight cities where consumers have the highest and lowest credit scores, bankcard usage and average debt, among other factors like economic indicators and a national forecast.”
To discuss the importance and understand the data in the report, LIVE! visited with Rod Griffin, director of Public Education at Experian in Dallas.
Understanding the Data and Importance of the Report
Griffin said Experian, for years, has been doing a State of Credit survey, which looks at average credit scores across the U.S. and compares them to the national average.
“The reason Experian does the survey is to help raise awareness of credit scores and credit reports, and to help increase people’s knowledge of why these things are important in their financial lives; and we hope to help them be more successful,” Griffin explained.
The overall goal of the report is to empower people to use their credit report and scores as a financial tool, and to educate them about that information, added Griffin.
He said the average credit score in San Angelo is 656, which is well below the national average of 673.
“There are some things that contribute to that,” Griffin explained. “Looking at Texas, looking at southern states, and looking at San Angelo as well, there are two things that really contribute to credit scores, specifically from a credit report, that are really important. One is utilization rate, and the other is your payment history.”
In regards to utilization rates, San Angelo is at 31 percent. Credit agencies determine utilization rates/percentages by adding up all balances and limits and dividing them.
“It’s a little bit high,” Griffin stated about San Angelo consumer utilization of credit. “The national average is 30 percent, so it’s just a little above.”
Griffin said ideally people want to pay their balances in full each month, and “people with the best credit scores have utilization rates of less than 10 percent.” Credit scoring companies say, however, at a maximum, people don’t want their utilization rate to be more than 30 percent.
“But the lower the better,” he stated.
The second issue is payment history. Late payments are very bad for credit scores, and the national average for late payments is .51 for credit history.
“In Texas it is .51 on average, and in San Angelo, it is .52. The national average for late payments is only .35,” Griffin noted. “We see a significant difference in late payments.”
He stated these are the factors that impact credit scores the most. On a whole, there’s a slightly higher utilization rate, but a significantly higher late payment rate in San Angelo than nationally, which explains why the scores are lower. These trends are common across southern states.
Griffin said it’s hard to say exactly what the cause is for this trend. There’s not one specific reason, but there are things experts look at.
Several contributing factors for lower scores include rates of pay, which tends to be lower in southern states, higher unemployment in many cases, and a lower education level. There are also cultural differences that may come into play in how people bank. Some people don’t bank because they don’t trust banks, which can be a factor, Griffin stated.
Also, with Texas being a large state, and how diversified the state is, that may be a factor as well.
“For some reason, Texas is dominating the bottom 10, so we have some work to do,” said Griffin.
Despite the lower scores in the southern states and in San Angelo, the nation is witnessing significant improvement overall since the economic crisis.
This year, looking at the national credit score, it has increased by four points. It went from 669 to 673.
“That doesn’t sound like much, but in credit score terms, that’s a pretty significant increase,” Griffin said.
Even the lowest ranking cities witnessed some improvements in credit scores. Almost every place reviewed last year saw an increase in credit scores overall.
“I think that’s important,” said Griffin. “I think that’s a really positive trend.”
Overall, there is an increase in income levels and standard of living is better than in previous years. There were increases in household income that hasn’t been present in previous years, so those are reflected in the improvement of scores; however, they’re just not as high in Texas as in other parts of the country, Griffin said.
Generational Credit Habits
In regards to generational trends in Texas, Griffin said they’re not changing much. The younger generation tends to have lower credit scores, and older generations have better scores, which has to do with life experience.
“Younger people have shorter credit histories, fewer accounts, lower credit limits, so there’s less information there to predict response,” Griffin stated.
However, experts are seeing some changes in millennials and younger generations in regards to credit card use over the years.
For a long time, millennials were very reluctant to use credit cards at all,” Griffin said. “We’re beginning to see that change a bit.”
Millennials and the younger generation are starting to use credit cards more, which helps with their scores, as long as they continue to make good decisions.
“It’s healthy to be afraid of debt, but it’s not healthy to be afraid of using credit well as a financial tool,” Griffin said.
Local Generation X and Millennial Discuss Their Credit Habits
One local couple, who wished to remain anonymous, and who are both a part of Generation X, discussed some of their credit trends over the years.
They said they are responsible for seven people in their family financially, and they purchased their home in 2005.
Together, the couple has a combined income of $160,000, but their debt, which includes their home, two cars, student loans and federal taxes owed, amounts to $180,000. This puts them over the utilization maximum threshold that Griffin discussed.
However, the couple said they have no other outstanding credit accounts.
In 2000, the couple filed for Chapter 13 bankruptcy because they moved to Dallas/Fort Worth, “and got in over [their] head” with a house they couldn't afford, seven credit cards they couldn't pay, a car note and student loans.
“All that combined was too much, and not enough coming in,” said the couple. “We filed for bankruptcy to give us a new start. We regrouped and learned from our mistakes.”
Beyond their house and vehicles, the couple said they do not use credit cards. If they don’t have the cash, they do not make the purchase.
Despite that, the couple said they would still definitely like to improve their credit score, and they do pull their credit report at least once a year to check for unauthorized activity.
A local ASU student, who wished to go by his initials T.J., said he got his first credit card in 2013 to purchase school supplies. Now, at 21, he has eight credit cards, and pays the minimum monthly payments.
“I try to pay more than the minimum, but it’s very rare,” said T.J.
Overall, T.J. said he thinks it’s important to have credit to make big purchases, like cars or houses, in the future.
“This requires building a good credit score,” he said. “On the other end, it can start to become financially tasking keeping up with multiple credit cards.”
T.J. said his credit score currently is somewhere in the 600s. He said over the years he has learned to try and keep credit cards to a minimum.
“The monthly payments really begin to damage your bank accounts,” he noted.
Repairing the Damage
Griffin said people need to understand that having a good credit history enables people to have financial advantages and make purchases they otherwise wouldn’t be able to. Most people can’t pay cash for houses or cars, so large purchases need good credit.
Also, renters, utility and cell phone companies, insurance companies, and employers check credit history when determining agreements, deposits, rates and dependability.
“Having a good credit score actually helps you save money,” said Griffin.
If someone’s credit is poor, he or she should never give up. A credit report is a credit history, and it doesn’t last forever. People are empowered to change their credit history.
Basic things to improve a score includes reducing credit card spending, lowering balances, catching up on late payments, and doing the common-sense things to help recover credit.
Griffin said financial advantages arise when people repair and maintain a good credit score. When people have poor credit scores, they may get stuck in predatory lending situations, which the San Angelo couple said happened to them previously.
“Breaking that cycle by managing your credit well will help you achieve financial goals that you otherwise couldn’t,” he noted.
There are non-profit agencies people can work with, specifically the National Foundation of Credit Counseling. People can get help to figure out how to identify what they need to work on, what steps to take to repair credit, and how to budget.
Griffin said bankruptcy is a tool to use whenever people have no other option.
“It’s a valid tool,” he stated. “But it’s a tool of last resort.”
Bankruptcy can have long-term effects on a credit score, Griffin said. It can take a few years to re-establish credit, so people must take this step seriously. Divorce, illness and job loss are good reasons to file; however, it should not be a tool to use to get rid of debt in order to apply for more credit. That defeats the purpose.
In regards to credit repair companies, the Federal Trade Commission said consumers cannot pay anyone to remove accurate information from a credit report. If the information is accurate, it will stay on a credit report.
“So, if someone’s promising you they will remove accurate information from your credit report so they can help your credit scores, there are several problems.”
One problem is violating the Credit Repair Organization Act, a federal law. A credit repair firm cannot, by federal law, promise to remove credit report information for a fee. It cannot take any money up front, must provide a contract, and meet all terms of that written contract before taking a penny. Therefore, if a company asks for money up front, it's violating federal law.
“Know your rights in that regard under the law,” Griffin said. He added people have three days to withdraw from a contract with a credit repair organization.
Griffin said instead of paying these companies to lower debt, people can use those funds and reduce their debt faster.
“And it would be longer lasting,” he said.
Also, many of these agencies are focused on debt settlement, which is not good for credit scores. People who settle for partial payment are negatively impacting their credit scores. Companies want to know people are fulfilling their debt obligations as originally agreed.
“There are other alternatives that may be better,” said Griffin. However, he said of course that depends on an individual’s situation.
People, overall, should pull their credit reports annually to check it for accuracy and to work on improving their score if necessary.
People can visit livecreditsmart.com for more information on credit scores and how to use them as a financial tool. Consumers can also find more details on the State of Credit report, and visit annualcreditreport.com to pull a free credit report.
“Don’t be afraid of it, or intimidated by it,” Griffin said.
Consumers can’t fix problems if they don’t know what they are. Plus, with identity theft on the rise, it’s important to check for inaccuracies.
If people notice suspicious activity, they can process disputes online through experian.com/dispute.
“If you don’t have a personal copy of your credit report, Experian will provide a free copy and will walk people through the process. It then goes out to the lender,” Griffin said. “That process is very automated and easy to do.”