Credit Scores Down But Credit Card Debt Up

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Numbers don’t lie, but sometimes they don’t tell the whole story. Credit score and product site compared the amount of credit card, mortgage and student loan debt in each state, along with each state’s average FICO score. On average, we’re not doing so well, evidence of the ongoing struggle for financial stability many families still face more than two years after the “official” end of the recession. The average American’s score was 663 in the third quarter, a drop of four points from last quarter, even as our average credit card debt ticked up to $6,513. But there were some surprises in the state-by-state breakdown. The top-scoring states were California and New Jersey, with average FICO scores of 682 and 680, respectively. (It’s worth noting that neither of these is high enough to be eligible for most lenders’ prime rates. For that, you generally need a minimum of 720 or 750, depending on the lender.) At the other end of the spectrum are South Carolina and Mississippi, where the average scores are 638 and 626, respectively.

But these numbers don’t tell the whole story. Despite its high average credit score, New Jersey also tied with Connecticut and Wyoming for the highest amount of credit card debt: $7,666 per consumer. Maryland is saddled with the highest average student debt in the country — $33,359 — despite a respectable average FICO score of 667.

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And California’s top score occurs in spite of a whopping average $315,199 in mortgage debt — the highest in the country by more than $15,000. Compare that with West Virginia, which has the lowest average mortgage debt in the nation — $103,050 — but also has the fifth-lowest credit score.

How can high scores go along with high debt, and how can states that have been devastated by the foreclosure crisis like California still have such high credit scores? Celia Chen, senior director at Moody’s Analytics, says some of the spread in FICO scores can be attributed to regional variations that preceded the housing collapse and recession. “Different states will have different set points for what their credit scores or indebtedness levels are,” she says. For instance, “The South does typically have lower credit scores.”

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Chen calls California an anomaly. “Given that California in particular was one of the worst-hit states by home price declines, I’m surprised the credit score turned out to be as high as it is,” she says. She theorizes that people with the weakest credit scores may have fallen off the radar, raising the average higher by their absence.

In other states, the effect of recent economic events are reflected more clearly in the data. “Generally speaking, having a housing market correction being as severe as it has been has been a negative for consumer credit,” Chen says. “It tends to cause credit scores to fall because of the rise of foreclosures or just loans going delinquent.”

Areas where unemployment is above-average also tend to have higher numbers of foreclosures and lower scores, because people have more difficulty making their mortgage payments on time. States where the unemployment rate as measured by the Labor Department is higher than the national average like Florida, the Carolinas, Michigan and Nevada all have below-average credit scores.