Are You Part of the Credit Community?

Credit Repair

There are many communities to which the average person belongs. One of these could be the credit community, defined as individuals who have a credit file and a credit score. However, there are many who don’t belong to this community due to lack of a credit score either by choice or because they just haven’t been able to get credit.

Who Doesn’t Belong to the Credit Community

While it’s true that the majority of Americans do belong to the credit community, there are two distinct groups that do not: 

  • Once Bitten, Twice Shy – This group has had a bad experience with credit in the past and has mismanaged their credit cards or bank accounts, and may try the strategy of going all cash. It’s still possible in today’s society to get by without credit, and unless there’s unpaid tax liens, an persons credit file will be cleared after 10 years.
  • Which Comes First, the Chicken or the Egg? Generally, in order to get credit, you need good credit. People without credit face a Catch-22 dilemma, as no credit is as bad as bad credit. Lenders like to know whom they are dealing with when making lending decisions. Without a track record to look at, lenders may be unwilling to take a chance on a new customer without a credit file. So with no credit file, you may not be able to get new credit, and are unable to build credit in order to apply for new loans – it’s a circular problem. Secured cards (which require a deposit) and credit builder loans are the ways for people with no credit to get a credit history.

Credit Communities Across America

A study by the Federal Reserve Bank of New York discovered that on average, 89.2% of the U.S. population had a credit file and credit score in 2014 (and thus belonged to a credit community).   New Hampshire led the country with 96.4% of the population having a file and score, while Arizona, at 84.7%, had the least amount of the population having scorable credit histories. This represents an upward trend in membership – the lowest participation was in 2012, where only a little over 87% nationally had credit files and credit scores.

Credit Community Access to Revolving Credit

Just because you have a credit file doesn’t mean you are able to get credit. The New York Fed study measured one metric indicating a consumer’s ability to obtain credit: the revolving credit indicator. The revolving credit indicator is the percent of individuals in the credit economy who are able to obtain credit, up to a limit, without having to reapply or re-qualify for a new loan using revolving credit products such as credit cards and home equity lines of credit. The U.S. population access to revolving credit average was 70% in 2015, with the highest levels of revolving credit accessibility being in Alaska, Hawaii, Utah, Colorado, North Dakota, Minnesota, Washington, and the Northeastern U.S. The lowest levels were in the southern parts of the country. Comparing the data annually since 2006, the highest level of accessibility to revolving credit was in 2007, reflecting the easy credit that existed and what some say caused the financial crisis in the late 2000’s.

Credit Community Available Credit

Your credit utilization is defined as the ratio achieved by dividing your available credit by your credit limit, and this ratio is 30% of your credit score, according to FICO. The lower your credit utilization, the better your credit, with optimal credit utilization reached when you stay at or around 10%. The average credit utilization in 2015, according to the New York Fed study, was 38% across the country. This would have the net effect of lowering the average U.S. consumer credit score.

Credit Community On-Time Payers

Your payment history is 35% of your credit score, and having a history of on-time payments will benefit your score tremendously. The NY Fed study looked at the percentage of the credit community that was current on all obligations in 2015. The national average was 78%, and this is an upward trend. In 2006, the average was just over 74%, with an increase in on-time payers each year from 2010 on. The highest percentage of on-time payers was in the New England states, the northwest, and the northern Midwest states, with North Dakota having the highest percentage of on-time payers, greater than 85%. Mississippi had the lowest average of on-time payers with less than 70%.

Credit Community Percentage With Good Credit Scores

Your credit score is calculated based on the information in your credit report, and there are 3 main areas of consideration besides your payment history and your credit utilization: your mix of credit, your average age of accounts, and any new credit you have. The study did not look at the other 3 factors but analyzed the credit score data of the U.S by county. The percentage of U.S. consumers that had a prime credit score, defined as 720 or above, in the Equifax Risk Score 3.0 which has a range of 280 – 850, was 50%. Higher credit scores in general, were in the northern part of the country. In the southern U.S., an average of 50% of the population had subprime credit. Interestingly, the percentage of the population with prime credit is the highest it’s been since 2006.   Conversely, the percentage of the national credit community with subprime credit, defined as having a credit score lower than 660, was 33%.

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