| High Credit Risk Areas |
| By Credit Federal |
Published
05/4/2009
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Financial News
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High Credit Risk Locations and No Credit Check Loan Option
If you've been rated a high credit risk, it may be because of where you live. Even so; for the moment there is still an unsecured, no credit check loan option unless legislatures take it away.
A new study released by the TransUnion credit report bureau shows that consumers are at higher risk of defaulting. According to the study, borrowers are nearly 25% more likely to default on (chargeoff) payments than 10 years ago. One bit of good news; however, is that the quarterly rate of default increase isn't as sharp as it was during the 2001 recession. Perhaps because we haven't yet reached the worst of the recession.
TransUnion further explains that credit risk is higher in some regions of the country than others. Wall Street Journal's The Wallet says that while the data does break down default risk on a geographic level, it shouldn't mean anything for any one consumer and his/her debts. But, it does help us understand why credit card issuers are increasing interest rates for so many consumers, while others seem to come away unscathed.
Banks have long realized the regional aspect of credit card defaults. When Amex reduced credit limits last year, cardholders' residences played a factor. Citigroup, who raised millions of cardholders' interest rates last year, stated that credit card chargeoff rates were higher in areas of high unemployment. The TransUnion study merely supports the same conclusion banks had long already deduced.
The higher credit risk based on where you live won't be reflected in your credit score because FICO and the credit bureaus don't use geographical information to calculate credit scores. Banks; however, often have their own credit scoring and risk modeling systems that could use geography as a factor to review accounts and new applications.
10 States with the Highest Credit Risk
- Mississippi
- Texas
- South Carolina
- Louisiana
- Nevada
- Georgia
- Arkansas
- Alabama
- New Mexico
- Oklahoma
Several of these states have experienced the most significant changes in unemployment since the recession began. Mississippi, South Carolina, Nevada, Georgia, and Alabama all have unemployment rates that exceed the national average.
State median income could also play a factor in the credit risk of certain states. With the exception of Nevada and Georgia, all the high credit risk states rank low in terms of median income.
Higher income; however, doesn't always mean lower risk. Of the 10 states with the lowest credit risk, only three rank top 10 in for median income - Hawaii, Minnesota and Massachusetts.
10 States with the Lowest Credit Risk
- North Dakota
- Minnesota
- Vermont
- South Dakota
- Iowa
- Hawaii
- Massachusetts
- Washington
- Nebraska
- Montana
All the lowest credit risk states; except Minnesota and Washington, have unemployment rates below the national average.
Living in a low credit risk state won't necessarily boost your personal finances or protect you. You need to continue monitoring your credit score and don't take risks that could end up costing you points.
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