Credit card usage is on the rise, according to a report released this week by the well-known credit-tracking company, Experian. More Americans have more cards, and heavy users are just getting heavier. Texas isn't doing so bad, though, ranking below the national average for the number of cards per resident, the percentage of those who own more than ten cards, and the percentage of those using fifty percent or more of their credit limits.
Texas residents had an average of 3.3 cards each, and just under eleven percent owned ten or more. Forty-four percent in the study had more than two cards, and 12.9% were using half or more of their available credit. That's pretty good, considering that the average American holds four cards, ten percent have at least ten of them, and fourteen percent are using fifty percent, or more, of their credit limits. New Hampshire ranked the highest for the average number of cards (5.3), the number of those who owned two or more cards (63.4%), and the percentage of those who had ten or more of them (20.3%).
Experian's study was conducted by randomly pulling 3.2 of their 215 million credit files. Each state was given its own statistics, as well as being a part of the national averages. Credit scores were also analyzed using Experian's own "PLUS" system, though there are many systems in use -- including the most popular, FICO, which was created by Fair Isaac. Credit scores, once analyzed, are used by lenders to deny or approve credit and to determine interest rates.
Twenty to thirty factors affect credit score, however -- not just credit card usage. These can include total debt load, type of debt, payment history, lines of credit, and bankruptcies, including those filed due to medical bills. New England, for instance, is the nation's heaviest credit user, but residents' scores are also, on average, the highest. The main problems with credit cards come with their misuse. Balances on cards exceeding sixty-five percent of their limits and poor payment histories count as negatives. Any debt carried month-to-month is also a bad sign, according to Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School and co-author of The Fragile Middle Class: Americans in Debt. It means the holder is not living on his or her income, she says.
"Typically, the higher the utilization, the lower the (credit) score." Those in New England, however, "are paying their bills on time, so their credit scores are not suffering," said Pete Bolin, senior analyst for Experian.
Though the state's overall credit rating seems fine for now, the healthcare crisis may leave residents of Dallas, Houston, Austin and other cities and towns throughout Texas particularly vulnerable to credit ruined by unpaid medical bills, as twenty-five percent of its population is living without health insurance, including twenty-seven percent of its young adults. Credit reports don't treat medical bills differently from any other debt owed, as evidenced by the fact that half of all bankruptcies in the U.S. are filed due to illnesses and medical bills, according to another Harvard study. Thirty-eight percent of those who filed for these reasons lost their health insurance at some point during their medical hardships, many as a result of employer-sponsored coverage backing out.
Credit cards alone are enough to worry about, especially for those carrying high balances. The federal office of the Comptroller of the Currency is pressuring banks to double cardholders' minimum payments to four percent in order to weed out high-risk borrowers. Many are protesting such a move; forcing more Americans to file bankruptcy, after all, is not going to solve problems in the housing market, nor the tendency to mismanage credit.
Robert D. Manning, author of Credit Card Nation and director of the Center for Consumer Financial Services at Rochester Institute of Technology in New York, believes the current situation is partially the result of an aggressive and immensely profitable credit card industry, however -- not just the credit card holders themselves. Those with poor credit are forced into obtaining several cards with low credit limits and high fees to get what they want, he says.
Huge penalties and astronomical interest rates imposed for missed payments don't help the situation either, and when payments become overwhelming, credit ratings just get worse. When credit ratings go down, so does the number of those who qualify for large loans, and thus, the housing market -- the decline of which is making big news of late. The best thing to do for now? Save your credit if it's sliding, and maintain good scores if it's not. Bolin suggests the following:
(1) Calculate your next move. Before closing credit cards, for instance, figure out the effect on your balance-to-limit ratio.
(2) Vary the types of loans you take out. These can include auto loans, mortgage loans, installment loans, equity lines of credit, credit cards, and student loans. This shows creditors you can handle debt in different types of situations.
(3) Make payments on time! No matter the debt load or type, without timely payments, your credit is shot.
(4) Limit the use of available credit to sixty-five percent or less. If you can pay off your debts every month, do it. The lower the balance, the better. Zero, of course, is best.
Being aware of issues affecting your credit rating, and how that credit may be affected by your healthcare coverage is an important aspect of maintaining control of your life. How you take care of yourself will certainly affect you as you age, and eventually your wallet, as well.
Pat Carpenter writes for Precedent Insurance Company. Precedent puts a new spin on health insurance. Learn more at Precedent.com