Every state in the union increased its average credit score last year, recent data shows, despite rising inflation and the loss of numerous pandemic relief measures.
The average FICO score nationwide rose four points to a record high of 714, according to Experian, making 2021 the fourth consecutive year of increases.
According to a 2022 TransUnion report consumer credit health is rebounding steadily. Consumer spending is approaching pre-pandemic levels, and credit holders are generally paying more than their required minimum payments.
But while that puts the average American deeper into “good” credit territory (between 670 and 739, out of a possible 850), the gulf between high-score and low-score states remains vast.
That matters because credit scores don’t merely reflect prosperity or financial responsibility.
Lower scores actively limit economic opportunities, making it harder and more expensive to buy a home, finance and insure a car, rent an apartment, get certain jobs and — most maddeningly of all — get a better score.
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Borrowers beat the odds
Average scores increased by at least two points in all 50 states, with Maine, Mississippi and Nevada tying for the title of “most improved” by gaining six points each.
Borrowers in all areas and all age groups were able to weather the loss of federal relief programs that helped many people keep up with their debt obligations, Experian says in a blog post.
Americans also endured a considerably higher cost of living; when the credit score data was pulled in September, the inflation rate had ratcheted up to 5.4% compared with the same month a year earlier.
Rising wages may have been an important factor that helped many people avoid debt and protect their scores, the credit reporting agency says. The Great Resignation sparked labor shortages across various industries last year — peaking at 4.5 million quits in November — allowing workers to demand higher pay to stick around.
Where scores go south
While the new numbers show that Americans handily averted a credit catastrophe, the findings still reflect decades-long divisions between Northern and Southern states.
Every state with a credit score above 730 (besides Hawaii) lies in the northern half of the country. Those states typically have higher average incomes, and homeowners have substantially higher mortgage balances.
For the 10th year in a row, the Northern state of Minnesota ranks the most creditworthy in the country. Its average score improved three points last year to 742.
Meanwhile, every state with a credit score below 700 lies in the South — as do nine of the 10 poorest states in America.
Mississippi takes the bottom spot in both categories, with an average credit score of 681 and 1 in 5 residents living below the poverty line.
People in the South consistently harm their scores by using more of their available credit, Experian public education director Rod Griffin told CNBC in 2019, adding that the reason is likely both economic and cultural.
“That, to me, is a telling issue. People may be using their credit cards as a supplement to their income in the South, or are just using them more and carrying a higher balance,” Griffin said.
A habit of carrying higher balances is especially damaging for people with low scores and thus low credit limits. That’s because a key factor in determining credit scores is credit utilization: the percentage of a person’s available credit that is currently being used.
A person carrying a $2,000 balance from month to month on a credit card with a limit of $5,000 will harm their score more than a person carrying the same amount on a card with a $10,000 limit.
The cost of low credit
Among other penalties, a low score subjects borrowers to higher interest rates and low credit limits. Buying or affording a home can be an especially daunting challenge.
Experian estimates the difference between taking out a 30-year, fixed-rate $250,000 mortgage with a 670 FICO score and a 720 FICO score could be $72 a month — or $26,071 in interest over the lifetime of the loan.
That’s a gap of just 50 points, while the gap between the average scores in Mississippi and Minnesota is currently 61 points.
However, even if your credit score is positively Minnesotan, that doesn’t mean there isn’t a need for improvement.
A 740 credit score is at the bottom of the “very good” range in FICO’s rating system and a long way from “exceptional.” Many homeowners are wielding considerably higher scores to keep their monthly bills down.
Homeowners took on $1.03 trillion in new mortgage debt in the fourth quarter of last year, according to the Federal Reserve Bank of New York, and two-thirds of that came from borrowers with credit scores over 760.
Average FICO score by state in 2021
Alabama: 691 (up 5)
Alaska: 717 (up 3)
Arizona: 710 (up 4)
Arkansas: 694 (up 4)
California: 721 (up 5)
Colorado: 728 (up 3)
Connecticut: 728 (up 5)
Delaware: 714 (up 4)
District of Columbia: 717 (up 4)
Florida: 706 (up 5)
Georgia: 693 (up 4)
Hawaii: 732 (up 5)
Idaho: 725 (up 5)
Illinois: 719 (up 3)
Indiana: 712 (up 5)
Iowa: 729 (up 3)
Kansas: 721 (up 4)
Kentucky: 702 (up 4)
Louisiana: 689 (up 5)
Maine: 727 (up 6)
Maryland: 716 (up 4)
Massachusetts: 732 (up 3)
Michigan: 719 (up 5)
Minnesota: 742 (up 3)
Mississippi: 681 (up 6)
Missouri: 711 (up 4)
Montana: 730 (up 4)
Nebraska: 731 (up 3)
Nevada: 701 (up 6)
New Hampshire: 734 (up 5)
New Jersey: 725 (up 4)
New Mexico: 699 (up 5)
New York: 722 (up 4)
North Carolina: 707 (up 4)
North Dakota: 733 (up 3)
Ohio: 715 (up 4)
Oklahoma: 692 (up 2)
Oregon: 731 (up 4)
Pennsylvania: 723 (up 3)
Rhode Island: 723 (up 4)
South Carolina: 693 (up 4)
South Dakota: 733 (up 2)
Tennessee: 701 (up 4)
Texas: 692 (up 4)
Utah: 727 (up 4)
Vermont: 736 (up 5)
Virginia: 721 (up 4)
Washington: 734 (up 4)
West Virginia: 699 (up 4)
Wisconsin: 735 (up 3)
Wyoming: 722 (up 3)
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