Texans and Dallas-Fort Worth residents rank among the highest in terms of credit card debt, despite our relatively high incomes and low unemployment, according to reports from CreditCards.com.
Meanwhile, some 90 percent of Americans are not even taking the first step of assessing their financial health by getting a copy of free annual credit reports, according to the Consumer Financial Protection Bureau.
Looking up your credit report and then making changes in your credit life could save you hundreds if not thousands of dollars annually.
“Conventional wisdom says the more money you make, the higher your credit score,” said Matt Schultz, senior analyst with CreditCards.com. “That’s not necessarily the case.”
It is true in some states, like Minnesota, which ranked No. 1 in credit scores (averaging 701 out of 850) and No. 9 in income, according to the CreditCards.com study.
But Texas was the fifth-worst state with an average credit score of 651, yet the state’s median income was 25th relative to other states, according to the study, based on data from the Experian credit bureau and the U.S. Census Bureau.
A lower score can cost you significantly higher interest on everything from credit cards to auto loans to home mortgages, Schultz said.
“At 650, you’ll still have access to credit cards, but you’ll pay on the higher edge of the APR [annual percentage rate] range, which is typically 12.99 to 24.99 percent,” he said. “With traditional lending — auto loans and mortgages — a score of 650 will also cost you.”
How much, you say?
A loan savings calculator at http://www.myfico.com/ can spit out the numbers easily.
For example, a 30-year fixed mortgage for $100,000 would cost $57,723 in interest over the life of the loan if you had a 3.3 percent APR from a credit score of 760-850, FICO says. But with a lower FICO score of 620-639, you might get a rate of 4.9 percent and pay $90,515 in interest, or almost $33,000 more.
The same holds true for an auto loan. A 36-month new auto loan for $25,000 would cost someone with the higher credit score around $1,300 in interest with a 3.3 percent interest rate. But with the lower credit score, the interest would climb to almost $5,900 with a 14.2 percent interest rate, according to the FICO calculator.
Carrying a balance on credit cards also costs, and DFW residents are paying for it.
The CreditCards.com study found DFW ranks just behind San Antonio as the worst major metropolitan area in terms of credit card debt. Houston ranked fifth in the study.
The average balance carried by DFW residents was $4,900 spread over 2.2 cards, which the study said would take 14 months to pay off with a minimum payment while running up $382 in interest.
Here are four ways to shore up your finances, lower debt and increase your credit score:
Get your free credit report. Check your three credit reports at no cost at www.annualcreditreport.com or call 877-322-8228. You will need to use your Social Security number. The online process is smoother than a few years ago.
Checking one report every quarter will help protect you against fraud as well as provide a good picture of how you are using your debt.
Find out your credit score. Go to www.CreditKarma.com, www.WisePiggy.com or www.Credit.com. Also, check with your credit card company. Discover, American Express, Citigroup, JP Morgan Chase, Bank of America, USAA and other banks now offer free FICO scores to customers on their monthly bills. If you aren’t getting it, ask your bank when they are adding it.
Learn what goes into a credit score. MyFico.com is a great place to find out how scores are assessed and which parts of your financial life affect the score. For example, your salary, employment history and child support are not included in your score.
Take action. Paying your bills on time, keeping your credit card balances low and not applying for too many cards at one time will affect your score, Schultz said. Set up payment reminders to stay on track and if you are having trouble paying, contact your card company or a credit counselor. Also remember that an account that goes to collection, even if paid off, will remain on your credit report for seven years.
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net