What’s in a number? When that number is your credit score, it’s the key that gives you access to credit cards, mortgages and other loans. Anything below 720 can make it tougher or more expensive to get a loan now, which means a number like 622 is bad news. Unfortunately, that’s the average credit score in the state of Mississippi, the lowest in the country.First-of-the-worst Mississippi is followed by Arkansas, where the average score is 634, then Louisiana and West Virginia, both of which have averages of 635. South Carolina, with an average of 636, rounds out the bottom five. Credit education site CreditKarma.com crunched the numbers based on data drawn from its user base.
The two biggest forces responsible for where states land on the credit spectrum are income and education. “It’s very strongly tied to things that really reflect long-term earning capacity,” says Jed Kolko, chief economist and head of analytics at real estate research company Trulia.
“While income doesn’t directly affect your credit score, when the economy turns down, these people have less of a buffer,” says Greg Lull, director of analytics at CreditKarma.com. “They just don’t have the income to handle a downturn.” Without monetary reserves, bills go unpaid or credit cards get maxed out, which depresses scores.
For example, the average household income in Mississippi was $37,985 in 2010, according to census data. Two of the other five lowest-earning states, Louisiana and Arkansas, are also in the bottom five for credit scores; in all three of these states, the average resident earns $10,000 less than the national median income of $49,445.
Then there’s the education piece of the puzzle. College degrees, even though they saddle many graduates with high student loan burdens, still open the door to better job opportunities and higher income.
As of 2009, only 17.3% of West Virginia residents had a bachelor’s degree, the lowest in the nation and more than 10 percentage points below the national average. Arkansas, which has the second-lowest average credit score in the country, also had the second-lowest level of college graduates with 18.9%.
That’s not to say that the recession doesn’t have any effect. Betsey Stevenson, a professor at Wharton Business School, says that safety net programs — such as food stamps and unemployment insurance, which are managed at the state level — are scarcer or less robust in low-scoring states. Cash-strapped residents may turn to credit cards just to put gas in their cars or meals on the table.
This is true in South Carolina, according to the Center on Budget and Policy Priorities. ”South Carolina cut TANF benefits by 20% effective February 1, 2011, reducing benefits for a family of three from $270 per month to $216 — just 14% of the poverty line,” a recent report read.
As surprising as it might seem, one factor that has very little effect on credit scores is the housing market, says Trulia’s Kolko. States with the highest number of underwater homes and foreclosures like Florida, Arizona and Nevada didn’t land at the bottom of the credit score list.