We Finally Have Slightly Better Credit, Not That It’s Doing Us Much Good

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Americans’ credit scores finally appear to be inching back up after taking a beating during and after the last recession. But for a whole host of reasons, this might not have as much practical benefit as you’d expect. While improving credit is good news, it’s just part of the picture, and the rest of that picture is still pretty gloomy. 
According to a recent study from Experian, the average credit score squeaked up to 750 this year, a one-point increase over last year. (Experian used the VantageScore model for its calculations, which has a range of 501-990, so that 750 isn’t as impressive as if it were on the more common FICO scoring system, which ranges from 300 to 850. On the VantageScore scale, a 750 is considered midrange, like a C letter grade)
A new analysis by FICO drew similar conclusions. Fewer Americans are in the lowest-tier bracket of 300-499 today than in 2008. “This means that about 800,000 fewer people have such low scores today,” FICO says, and the number of people in the the top range of 800-850 is now above pre-recession levels.
(MORE: New Score Says You Have Better Credit, But Will It Get You a Mortgage?)
Not everyone is sharing in this improvement equally, though. There were sharp regional differences in Experian’s study, which showed Minneapolis on top with a score of 787, versus Savannah’s 713 average. New research from CardRatings.com also found big disparities based on geography: It named (in order) North Dakota, Vermont, South Dakota, Montana and Iowa as the states with the best credit conditions. Experian’s study had cities in South Dakota and Iowa in the top five, as well.
The also showed that some areas hard hit by foreclosures such as Bakersfield, Ca., and Las Vegas made the greatest improvements, likely reflecting a recovery in these foreclosure-stricken real estate markets. An analysis in yesterday’s New York Times of the benchmark Case-Schiller index of home values found “lower-price homes are catching up, rising slightly faster in value than homes in the middle and upper tiers.” In the last three months, “the lowest tier has been rising in value more than twice as fast as the other two categories,” according to the Times. Unfortunately, these homes were so far underwater that it’s going to take a lot more improvement before homeowners trying to sell or refinance will see any relief.
(MORE: Need a Mortgage? Better Hope Your Credit Record Is Almost Perfect)
Another place there’s scant evidence that these incremental improvements are being rewarded is in the credit card market. “Card companies keep low rates for themselves,” a headline on Fortune/CNN says this week. In the four years since the Federal Reserve lowered interest rates and has been buying bonds — a.k.a. quantitative easing — “Card interest rates have actually gone up,” the article says. “When it comes to credit cards the main beneficiary of Bernanke’s policies have been banks and not borrowers.”