Does America have a credit card problem? Recently after asking one client what his credit score was, he responded that he didn’t know and that it wasn’t important to him. After explaining how his score would determine what loans he would qualify for and the interest rates he would have to pay, his next question was how he could raise his score immediately. Your credit report and credit score is one of the most important things to manage. Click here to see the answers to your top credit questions. Getting a great credit score can take a lifetime, but ruining it can take just one late payment. Your FICO credit score is based on your payment history, debt amount, mix of credit types, new credit, and your credit history.
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When it comes to your debt amount, your credit utilization rate, the ratio of unpaid credit card debt to the credit card limit, is actually more important than total outstanding debt. To get the best scores, you want your credit utilization rate to be less than 10%. If you have one credit card with limit of $1,000 and have a balance of $500, you are at 50% of your utilization limit. In comparison, someone with a limit of $50,000 and balance of $5,000, will be better off even though they have more debt. This is because the credit utilization rate is only 10%, which shows creditors that you can manage your debt better.
It’s important to compare how you match up against others in your region since it can affect whether you qualify for loans. According to a survey by Credit Sesame, the average credit utilization rate for their members is 55%, which is on the high side. One of the reasons behind the high rate is that 12.8% have maxed out their credit cards. They have an average of four to five credit cards with an average total credit limit of $17,171. Based on the analysis, America has a credit card problem!
Those with poor credit scores of 600 or below have an average credit utilization rate of over 91% with 28% maxed out on their credit cards. Those with good scores between 600 and 700 have an average credit utilization rate of 54% with 8.9% maxed out. Those with an excellent score above 700 have an average credit utilization rate of 11.4% with almost none of them (0.07%) maxed out their cards. Clearly your utilization and over-the-limit rate make a big difference in your score.
Interestingly, people with good scores have the most debt ($5,536), followed by those with excellent scores ($4,174), while those with weak score have the least amount ($2,805). Those with low scores don’t qualify for as much credit as those with higher scores, which explains why they have less debt, but also explains their higher utilization rate.
There are big differences between the four regions of the United States: Northeast ($5,018 average credit card debt), West ($4,806), South ($4,310), and the Midwest ($4,288). Out of all of the states in the West, Hawaii had the highest average credit card debt at $6,182, and average credit card limit at $23,023. This is most likely due to our high cost of living. The utilization rate is 52%, just below the national average with 10% over their credit card limit.
In order to qualify for a loan in Hawaii and in the Northeast and West, your credit needs to be in good shape to qualify since scores are higher in these areas. Those who live in the West are doing the best job managing their credit cards. They have the lowest credit utilization rate of 52.2% and the lowest percentage for over-the-limit amounts, at 11.2%.
The Northeast is close behind with an average credit utilization rate of 52.4% and 11.4% of users over their limit.
On average, cardholders in the Midwest struggle a bit more. They have a higher utilization rate of 55% and 13% of cardholders are over the limit.
The South has the worst situation with a utilization rate of 58.7% and over-the-limit rate of 14.8%.
Despite lower utilization rates, the Northeast and the West have their share of credit card problems. Cardholders in these areas have more total credit card debt than cardholders in the Midwest and South. This is likely because their better credit card scores helped them qualify for a larger credit limit, and many tend to spend more with higher limits. If you live in the Northeast or West regions and need to apply for a loan, your credit needs to be in good shape to qualify, since general credit scores tend to be higher in these areas.
The main takeaway is to avoid maxing out your cards! You don’t need to get rid of all your debt to maintain a good score, but you want to lower your utilization rate. Focus on making payments to lower your debt, Click Here for tips on paying your credit card debt down, and open up new accounts or ask your current cards to raise your limits to automatically improve your utilization rate. As long as you avoid maxing out your accounts, you can still improve your score without stressing out about paying down your debt.
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