How Americans use their credit cards differently across the US
- Credit-card debt is at an all-time high in the US, with differences in balances and credit scores across regions.
- Residents in the Northeast and Upper Midwest generally own more credit cards and have higher credit scores.
- Southerners, on the other hand, have lower scores and fewer cards.
- Here's how people use their credit cards differently across the US.
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At the beginning of this year, credit-card debt in the US hit an all-time high.
Delinquency rates on credit cards have fallen sharply since their peak at 6.77% in 2009, but data from the Federal Reserve Bank of Saint Louis (FRED) reveals that those numbers have been slowly creeping upward recently. Data from FRED also shows that interest rates on plastic have also been on the rise recently, increasing the cost of carrying a balance from month to month.
These figures, however, vary depending on the region of the country. Here's how credit card use differs across the US.
States with the lowest credit scores
The region stretching from South Carolina west to Texas and Oklahoma has the lowest average credit scores, ranging from 647 (Mississippi) to 657 (South Carolina and Arkansas), according to a 2017 Experian report. These states generally have higher poverty rates than the national average, according to Census data.
Additionally, two Southern states - Mississippi and Florida - are the only two in which secured credit cards are the most popular form of plastic, according to a consumer study by NerdWallet.
Secured cards work similarly to debit cards, because the cardholder must "deposit" funds onto the card, rather than being issued a credit line upfront. Unlike debit cards, however, these cards report repayment activity to the major credit bureaus, and are therefore geared toward consumers with poor or little credit history.
The only non-Southern states in the bottom ten in scores are West Virginia (658) and Nevada (655).
Nevada may be a surprise because, unlike higher-poverty regions such as the South and West Virginia, the Silver State not only has a poverty rate almost identical to the United States at large (14.1% to the country's 14%), according to the US Census Bureau.
Residents living in Nevada have an average of 3.18 credit cards and a $6,401 credit card balance, which aligns very closely to US the mean (3.1 and $6,354, respectively, according to Experian). With so many middle-of-the-road numbers, one might think that Nevada's average credit score would be similarly close to the 675 score of the nation at large. Instead, it ranks as having one of the country's lowest.
The reason for this can be difficult to pin down. It may not have to do with geography, according to Scott Schuh, associate professor of economics at the University of West Virginia.
Credit card habits, Schuh told Business Insider, are much more strongly tied to income and wealth than they are to where you live: "From middle income and up, the propensity to adopt credit cards, the propensity to use credit cards, and the propensity to take advantage of rewards ... all three of those things have a very strong correlation with income and wealth."
States with the highest average credit scores
On the other end the spectrum, Minnesota, Vermont, New Hampshire, and South Dakota are the only four states with an average credit score of 700 or higher, according to Experian.
Again, this aligns with what we'd expect from the U.S. Census Data - New England, along with parts of the Upper Midwest, are near the bottom when it comes to poverty rates.
Unlike other high-income states, however, Alaska's average credit score is below the national average. Again, Schuh said he does not think there is an easy explanation.
While wealth and income correlate strongly with having and using credit cards, having a high credit score, and avoiding defaults, Schuh pointed out one thing your wealth does not predict: whether you maintain a balance or not. "That does not have a strong income correlation," Schuh said. "It's kind of puzzling why that is."
The Experian data bear this out. Both higher-poverty Texas and low-poverty Hawaii have average debts approaching $7,000. On the other hand, low-poverty Wisconsin and high-poverty Mississippi both keep their balances below $5,500 (among the lowest in the nation), Experian reported.
Schuh said the most likely explanation is simple: impatience. Some people feel like they need to have something now, which can make them more likely to borrow money at high interest rates, he said. That impatience is not clearly correlated with income. "There's impatient high-income people and impatient low-income people," he said.
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