At the end of 2012, the average national credit score in the United States was 696, but some states scored way above that average while others fell dismally short of the average. (source: equifax.com). While the SEC has always been strong in college football and other athletics, the South came in at the very bottom when it comes to credit scores. States such as Vermont and North Dakota were up in the 721 range, while Louisiana (669), Georgia (667), and Mississippi (661) were the three states at the bottom of the heap. FICO scores can range between 250 and 850, and having a credit score above 750 has always been considered excellent while falling below 650 can be considered sub-prime when it comes to lending. So, why did Georgia rank near the bottom and what can we do to fix it?
1. Pay off past due balances — Your payment history makes up roughly 35% of your overall credit score. Think about this in very simple terms. Loaners like people who can consistently pay off the obligations from the money that they borrow. Credit card companies who give you a line of credit like to see you actually use this credit and be able to pay it off in a timely manner. Coincidentally, banks like to see the same thing from business owners when it comes to having working capital for lines of credit. If you have additional cash, pay off the overdue balances and make sure it is accurately reported to your credit report. Some credit card issuers will consider putting a different age on the debt if you discuss this with them when you pay it off.
2. Leave your lines of credit open — In my experience, it's very rare that closing out a credit card will dramatically improve your credit score. One of the things on your credit report that will be examined is your overall debt utilization. It's important to keep the cards open once you pay off the debt to show your overall utilization and that it has gone down. In fact, if you use several of the cards more frequently it would be better to ask your credit card company for a credit increase rather than taking out another new card. New cards can be a drain on your overall score as length of history on overall credit is an important factor.
3. Talk to your lender — Remember, that lenders are businesses and they don't want you to default on your debt. It costs them time and money to have collection agencies go after you. Some money in their pocket is better than no money at all. If you have fallen way behind, you might be able to offer up a settlement amount and have your loaner make a notation that you are paid in full. I recently had a situation where a client was able to pay off over $120,000 with Wells Fargo from money owed due to short sale for less than $28,000. This will all be considered paid off in full with a clean credit record.
As a side note, the Masters has always been the crown jewel of the major golf tournaments and is held in Augusta. The Augusta area scored dead last in metro areas coming in with an average credit score of 651. Maybe the city can get a little bit of help from the millions that pour into that tournament every year. Maintaining a good credit score is going to become more and more instrumental for each of you in the future. This is true for getting a home loan, the interest rate you'll pay on other loans, and even what your utility company or your employer might think about you. We all want to be winners, so think about these key areas to fix and make a smart money move by getting your credit score to the 800 level!