credit score

Credit card debt is not to blame for dip in credit scores says CreditKarma

According to a recent report by CreditKarma, a company that follows national credit scores and household debt by studying data and publishing it on their website, credit card debt is not to blame for the recent three point drop in average credit scores.

The corporation found that since May of 2010, the credit scores of individual consumers nationwide have dropped three points to an average of 667. Although credit card debt has been a very real issue for many Americans, in the same time period, the level of credit card debt has been reduced by about 15 percent to an average of $6,740.

While overall the average credit card debt has decreased, Colorado Springs, Colorado remains one of the top cities for individuals with the largest amount of credit card debt averaging at a slightly higher rate of $7,000 or more.

There is a kind of false hope, says the credit tracking company as they reported that the average mortgage debt has also fallen by two percent. “As the housing market begins to double-dip and home prices plummet, it’s not surprising that homeowner debt and equity fell,” says the CEO of the corporation. “Banks aren’t going to enter into new housing loans or provide equity loans when home values continue to decrease.”

Other mentionable areas of debt that have experienced a change since 2010 are auto loan debt which is up by two percent, home equity debt which has fallen by five percent, and student loan debt which has also increased by five percent.

Source: Collections & Credit Risk, “Credit Scores Drop Three Points; Card Debt Down 15%,” Darren Waggoner, 9 June 2011

Could easier credit score access help Americans stay out of debt?

An interesting bill introduced into the House of Representatives by Rep. Steve Cohen of Tennessee may help consumers avoid credit card debt. The bill allows everyone to receive a free copy of their credit score on an annual basis. Representative Cohen argues that, as it stands, consumers only receive credit score information when they are denied a loan or turned down by a credit card company.

Cohen hopes that regular reports would provide an added reminder for citizens to correct their spending habits before their credit score reaches such a low point. As most consumers know very well, a good credit score can help secure better interest rates on things such as mortgages and credit cards. Furthermore, lower interest rates help consumers avoid becoming trapped in a cycle of personal debt.

Currently, consumers must pay for information regarding their credit score from a variety of reporting companies or wait until they need to buy something with credit and are rejected. Some bankruptcy scholars and experts agree with Representative Cohen that this structure may be exasperating the problems many Americans have managing their debt.

However, critics doubt that delivering individual credit scores will truly make a difference. Opponents could argue that, if the measure is ineffective at reducing debt, it will become another expensive bureaucratic measure which will further drain sparse federal funds.

In addition to the credit score provisions, the bill also requires the federal Government Accountability Office to reevaluate how bankruptcy-risk scores are developed. Bankruptcy-risk scores are another factor used to determine how likely it is that someone will file for bankruptcy. Representative Cohen and the bill’s other supports believe that increasing the visibility of bankruptcy-risk and credit score reports may help solve America’s debt problems.

Source: The Commercial Appeal. “Bill calls for free consumer access to credit report.” Bartholomew Sullivan, 18 February 2011.

Colorado credit card debt lower than national average

Colorado consumers have something to celebrate. According to Credit Karma’s US Credit Score Climate Report, residents of the Centennial State decreased their average credit card debt by nine percent over the course of 2010.

Credit Karma’s report revealed and eight percent nationwide decline in credit card debt, placing Colorado slightly ahead of the national curve. According to the study, the average credit card debt for US consumers is slightly over $7,000 dollars. Families and individuals who cannot support such a high level of debt may have to consider filing for bankruptcy protection.

Other states that, like Colorado, achieved a significant decreased in credit card debt include California, Connecticut, Indiana, Oklahoma, Tennessee, Nevada, and Wisconsin.

Credit Karma also reports that national credit scores currently sit at 668. While Massachusetts and New Jersey have managed to obtain outstanding credit averages as high as 686, Arkansas maintains with the lowest national score at 641.

Louisiana received a mention as the state with the most improved credit score, moving from 639 to 647.

These numbers are an encouraging sign that Americans are beginning to gain control of the debt issues which have become a serious problem throughout the nation. The findings are especially welcome in light of the many reports released at the close of 2010 which stated that American debt was actually on the rise and predicted a dismal start for 2011. In an earlier blog post from December, we relayed a CardHub report that American credit card debt had actually increased significantly in the previous quarter.

Yet, Credit Karma’s findings suggest that this end of the year setback did not prevent the nation from achieving year-long credit debt reduction. However, with national credit card debt still as high as $7,000 dollars, debt and bankruptcy issues remain a problem for many people. If you find yourself overwhelmed by your debt problems, you should contact a qualified attorney who can help you evaluate your options.

Source: ACA International. “Credit Card Debt Decreased Eight Percent in 2010.” 19 January 2011.