Do Location, Income or Age Influence Your Credit Score?

Do you know the average credit score in America?

According to Experian’s 2016 State of Credit report, the average credit score in America is 673.

Each year credit bureau Experian releases a study about credit scores called “State of Credit”.  In that study, Experian broke down credit scores down by region, generation, and income.

They even created two lists: the 10 cities with the best average credit score and the 10 cities with the worst average credit scores.

 “This is a promising sign as the economy continues to rebound,” an Experian press release read.

Experian VP of Analytics and New Business Development Michele Raneri said in the release that these rising scores are the result of the nation’s economic recovery, noting that higher wages and lower unemployment create better credit management.

Surveys like this one come and go every year, but it’s the principles of personal finance behind them that don’t change.

So, as we read through the results and talked with Rod Griffin about the stats, we formulated some big-picture questions about credit scores that go beyond this one study:

  • Does geography have anything to do with your credit score?
  • Does income have anything to do with your credit score?
  • Does age have anything to do with your credit score?

We’re going to tackle each one of these big-picture questions, using our interview with Experian Director of Public Education Rod Griffin as a baseline for our research.

Which Credit Score Are We Talking About?

Before we jump into the thick of things, you should know that the “credit score” Experian refers to is the VantageScore.

Without getting too deep into the nuances of credit scoring systems, we’ll point out that there are several popular scoring models, with VantageScore and FICO being the two most popular.

According to VantageScore’s website, the score they give you is based on the same major factors used to calculate your FICO score: payment history, age/type of credit, percentage of your credit limit you’re using, total balances/debt, and recent credit behavior/inquiries.

Though VantageScore and FICO are similar, they aren’t the same. You’ll find the two scores will be different based on a variety of factors.

Now, for the big questions…

Does Geography Play a Role in Your Credit Score?

This is a pretty volatile question, mainly because it implies that your credit score could go down based on where you live.

That just isn’t the case, but when we start digging into the results of Experian’s survey it’s hard not to think that where you live may influence your personal finance behavior.

Here are the results of Experian’s study of cities with the highest average credit scores:

  1. Mankato, Minn.: 708
  2. Rochester, Minn.: 708
  3. Minneapolis, Minn.: 707
  4. Green Bay, Wisc.: 704
  5. Wausau, Wisc.: 704

We think it’s pretty amazing that the top three cities are all located in Minnesota, while spots 4 and 5 are occupied by Wisconsin cities.

These trends don’t stop at the top five, either. Eight of the top 10 cities are located in Minnesota and Wisconsin. The two outliers? Sioux Falls, S.D., and Fargo, N.D.

These stats might lead you to think there’s some sort of credit-management Fountain of Financial Responsibility located somewhere in the Land of Lakes. Unfortunately, that’s not true, or I’d pack up now and head to Minneapolis.

Conversely, states along the country’s southern border dominate the bottom five in this year’s rankings:

  1. Greenwood, Mississippi: 622
  2. Albany, Georgia: 624
  3. Harlingen, Texas: 631
  4. Riverside, California: 632
  5. Laredo, Texas: 635

As you can see, Texas shows up twice in the bottom five. Out of the bottom 10, Texas appears three times, Louisiana shows up three times and California has two cities on the list.

Why is Minnesota home to such great credit and why are the states along the Southern border so mired in bad credit?

The numbers baffled Rod Griffin, too, although this isn’t the first time Minnesota performed so well in Experian’s yearly rankings.

Why there’s such a big disparity between cities on the northern border and cities on the southern border of the country was a tough thing to pin down.

“It’s really interesting and I’m not entirely clear why it’s like that. In the South, it may be cultural, in that attitudes toward credit are different.

It may also have to do with income levels and the jobs and opportunity you have,” Griffin said. “Lower pay scales tend to be linked to lower credit scores. Those are some of the things we can guess at but there’s no real empirical data to show that.”

Other Factors at Stake in the North and South 

When we asked Rod if good credit scores are a matter of good income, he said no – it’s about credit management. The better you are at paying on time and keeping your balances low, the higher your score will be.

The numbers and data didn’t add up for us, so we did a little research on the demographics of the top five cities and the bottom five cities to see if there were any patterns.

We found that the top five cities had white (non-Hispanic) populations of well over 80%, while the bottom five cities had minority populations of more than 50%.

We also tried to apply our own understanding of credit scoring to the situation. Based on what we know about credit scoring, low scores usually happen because of late payments and high utilization.

Late payments are divided up in three categories: 30-, 60- and 90-days. So, one assumption that we could draw is that residents of Greenwood, Albany, Harlingen, Riverside and Laredo have a habit of making late payments.

Another thing we’ve learned is that using more of your credit limit can seriously decrease your credit scores. So, you could assume that these five cities like to max out their credit cards.

A third thing we’ve learned about low credit scores is that people who don’t have credit won’t have a high score. People who have no or very little credit history are called “credit invisibles”, and since there’s no credit history to determine how much of a risk they are, the invisibles are tagged with low scores.

So, which is it? Late payments? High balances? No credit history?

The data doesn’t suggest an answer. We weren’t satisfied, so we did some research on income and cost-of-living in the top five and bottom five cities. Our hunch was that the money you’ve got coming in is more of an influencer than where you live or demographics.

Does Higher Income Affect Your Credit Score?

Even though experts say that credit scores aren’t necessarily linked to income, we think there’s some wiggle room there.

For example, when you apply for a credit card, you’re asked about your monthly income. The higher your income, the higher your credit limit will be, assuming you don’t have a rock-bottom credit score (sub-600).

Now, remember how we said utilization was a key factor in your credit score? Well, if you have higher credit limits, then there’s a better chance that you’ll have lower utilization, which leads to a higher credit score.

Let’s say you have a credit card balance of $4,000 and your credit limit is $5,000. You’re using 80% of your balance, which, according to credit scoring systems, is a “risky” behavior. So, your score drops.

But let’s say you’re earning three times the amount you did when you applied for the card. Knowing this, you ask your card company to increase your limit to $16,000. If they say yes, then your utilization ratio has dropped from 80% to 25%. Consequently, your credit score will increase because you are deemed less of a “risk”.

In this example, your credit score benefits from your higher income. Those who don’t make a lot of money don’t have this luxury, so their scores will stay lower while their utilization remains high.

We wanted to know the income levels in the top five and bottom five cities, so we dug into the numbers. In the following two lists, we’ve included the median income and the baseline cost-of-living income needed to stay afloat in that city’s county. We used MIT’s cost-of-living site and Minnesota’s state government site to get numbers for each county.

Keep in mind that the median income in the U.S. in 2015 was $55,575:

Top Five:

  1. Mankato, Minn.: $63,488 ($45,837)
  2. Rochester, Minn.: $63,472 ($50,078)
  3. Minneapolis, Minn.: $71,008 ($60,603)
  4. Green Bay, Wisc.: $55,638 ($34,493)
  5. Wausau, Wisc.: $40,464 ($41,453)

Bottom Five:

  1. Greenwood, Miss.: $26,156 ($41,004)
  2. Albany, Ga.: $26,156 ($34,419)
  3. Harlingen, Tx.: $34,868 ($40,548)
  4. Riverside, Calif.: $56,592 ($49,315)
  5. Laredo, Tx.: $39,408 ($42,189)

Does Lower Income Affect Your Credit Scores?

Based on the income numbers we gathered from the cities with the best and worst credit scores, we’d say income has a lot to do with scores. Simply put, the top five cities has significantly higher income than the bottom five cities:

  • Four of the top five cities have median incomes at least $10,000 above cost-of-living calculations for livable incomes.
  • All but one of the bottom five cities have median incomes below cost-of-living calculations.

We aren’t economic analysts, but we do specialize in personal finance. We know from our own research that being poor puts you at risk for dangerous financial decisions in the midst of emergencies.

For instance, if you’re living in Greenwood, Mississippi, and you have a medical emergency, you’re going to most likely get stuck with part of the bill.

When you’re making, on average, about $15,000 less than what you need to survive, you’re probably going to cover that bill by enlisting the help of a payday lender and will be susceptible to advance-fee loan scams.

In many cases, interest rates from payday lenders are insanely high and keep borrowers in a cycle of debt that is really difficult to escape. Also, many lenders require you to make weekly payments. Those payments are so high that borrowers can’t repay them on time.

The simple solution is to tell low-income consumers to stop borrowing from predatory lenders. However, in economic situations, simple answers tend not to cover all the nuances of a discussion.

See Also: Americans Are Bad at Budgeting and Great at Making Excuses

For the purpose of this article, we’re pretty confident in saying that low income can cause series issues with your credit score. Geography? Not so much. Where you live, in our opinion, isn’t as important as how much you make.

Age is a different matter. Experian’s study showed that older generations (Baby Boomers, Silent Generation) tend to have better credit scores and less debt. So, does your birthday affect your credit score? That’s what we’re going to tackle next.

Does Age Affect Your Credit Score?

If you were to tell us that the older you get, the better your credit score was, we’d think a lot of that has to do with wisdom. You’ve made financial mistakes in the past, but, over time, you’ve learned how to manage your money and credit.

Certain Expenses Decrease Over Time

While wisdom plays a part in the high credit scores, Rod Griffin told us, most of it has to do with family size and debt.

“Your salary tends to improve. Your expenses tend to decline once you’ve had a family and got your kids through college,” Rod said. “You see the score start to shift again because your debts and costs, in theory, are going down.”

Younger generations are just starting out in the economy, and, as a result, are taking on more debt in order to launch their adult life: car loans, student loans, credit card debt and maybe a mortgage.

“When you’re younger, as a college student, you’re coming out of school and you have student loan debt and you’re looking at establishing your life. There’s a lot of expense there,” he said.

It doesn’t get any easier when you start a family, either.

“Then you have kids, and it escalates even more,” Rod said. “Clothes, schools, playground equipment for the backyard, uniforms, gymnastics, soccer, basketball, football and all of the costs that children bring.”

By the time you reach your 50s and 60s, though, those expenses decline. Your mortgage is in its final years. Your kids have moved out. As Rod said, you’re buying gifts for your kids (and grandkids) instead of raising them.

And the numbers certainly show that Baby Boomers and beyond have a good handle on their finances compared to Gen Xers and Millennials:

  • Silent Generation: 730 VantageScore, 16% had 90-day delinquencies, 0.11 late payments per-person in any given billing cycle
  • Baby Boomers: 700 VantageScore, 27% had 90-day delinquencies, 0.27 late payments per person in any given billing cycle
  • Generation X: 655 VantageScore, 40% had 90-day delinquencies, 0.51 late payments per person in any given billing cycle
  • Millennials: 634 VantageScore, 40% had 90-day delinquencies, 0.52 late payments per person in any given billing cycle

There’s a very clear trend here – as you get older, your credit scores go up. Your late payments go down and your really-late payments go down as well. When it comes to credit, the numbers say it pays to get older.

Our Conclusions: Location, Income, and Age Have an Interesting Effect on Credit Scores

We love the stats that Experian puts out every year on credit scores and consumer habits. While they’re great in-the-moment-reading, they also offer up timeless principles you can apply to your credit habit for years to come.

In the case of the 2016 State of Credit study, statistics show that while geography doesn’t play a role in having a high credit score, income and age do for several different reasons.

Having a higher income means you’ll most likely have the resources to cover emergency events, which means you’re less likely to use high-interest loans or credit cards to cover those expenses.

Lower balances on your cards mean less of a chance you’ll exceed the 30% utilization threshold, which keeps your scores up.

On the flip side, lower income means you’re less prepared for financial emergencies and will more likely rely on borrowing money to keep yourself afloat, often at astronomical interest rates.

More loans at higher rates mean there’s a good chance you’ll miss payments, which, over time, causes a lot of damage to your score.

While income is something we have some control over, age isn’t. Experian’s findings reveal that older generations have higher credit scores. We said earlier a lot of this has to do with your life situation.

When you’re past 55, your kids are most likely out of the house and you’ve paid off a significant chunk of your mortgage. Your need to borrow money isn’t as acute as it would be for someone with a new family or a college grad just starting out.

Though age isn’t something you can increase on your own, you can pull some principles out of Experian’s study results about age and credit scores:

  • Don’t pay late on your credit cards. Gen Xers’ scores were 75 points lower than the Silent Generation because, in part, they had nearly five times the number of late payments each billing cycle.
  • Keep your card balances low. The Silent Generation’s average balance on their cards was $3,780 compared to $6,866 for Gen Xers.

From an overall perspective, the most important principle is that your credit scores can cost you thousands of dollars if you don’t keep them strong.

According to Springboard Nonprofit Consumer Credit Counseling, you could end up paying $20,000 more on a mortgage simply because you’ll be charged a full 1% more for having a 655 credit score (Gen X) instead of a 730 (Silent Generation).

Your car loan interest rates will be higher, too, Springboard says: 11% instead of 6.5%, according to 2013 numbers.

Because there’s a significant amount of money on the line – $20,000 or more , in some cases – we’ve put together an in-depth series of articles on credit scores.

We talk about how credit scores came into being, what they’re intended to do, how you can get good scores and how to repair bad ones.

J.R. Duren

J.R. Duren is a personal finance reporter who examines credit cards, credit scores, and various bank products. J.R. is a three-time winner at the Florida Press Club’s Excellence in Journalism contest. He is a member of the Society of Professional Journalists and his insight has been featured on Investopedia, GOBankingRates, H&R Block and Huffington Post.