Credit Scores, Reports, and Getting Ahead in America

Matt Fellowes

Consumer credit reports and scores play a growing role in the ability of families to get ahead, now influencing prices for loans and insurance and efforts to get jobs and rent apartments. An analysis of a quarterly sample of 25 million anonymous consumer credit reports and scores for every U.S. county between 1999 and 2004 reveals that:

  • Consumer credit scores widely vary across counties, with the South having the highest concentration of consumers with weak credit scores. In 2004, among all consumers, the average score on a credit score index maintained by one of the major bureaus was 656, out of a scale that ranges from 350 to over 850. Meanwhile, the average credit score in the South was 635, and more than one in five borrowers in a typical Southern county have scores that suggest they are very risky borrowers.

  • Between 1999 and 2004, most counties with weak consumer credit scores saw declines in the average consumer credit score, while counties with strong scores generally experienced modest gains. Nationwide, credit scores only modestly fell during this period, but the average Southern county experienced a larger decrease.

  • Counties with relatively high proportions of racial and ethnic minorities are more likely to have lower average credit scores. This evidence does not suggest that a bias exists, or that there is a causal relationship between race and credit scores, raising questions for future research.

  • High homeownership rates and county per capita income are strongly associated with high consumer credit scores. The average county with a low, mean credit score had a per capita income of $26,636 and a homeownership rate of 63 percent in 2000. Meanwhile, the typical county with high average credit scores had higher per capita incomes ($40,941) and higher shares of homeowners (73 percent).

  • Financial insecurity, primarily measured by the frequency of loan delinquencies, rose between 1999 and 2004. Over those five years, the proportion of mortgage borrowers 60 or more days late in their mortgage payments increased by 108 percent, from one out of every 106 borrowers to one out of every 51. About one out of every 21 borrowers had at least one credit-bearing account 60 or more days past due in 2004.

Consumer credit reports and scores are playing a growing role in the economic mobility of consumers today. But rising consumer debt and loan delinquencies mandate that government leaders, with their private sector partners, pursue a series of reforms to increase consumer education and responsibility, market accountability, and accuracy.