Sunday, July 31, 2011

Study: Arizona among worst states for consumer credit

The federal government isn't alone in facing debt challenges.

Arizona ranks as one of the worst states for consumer credit, according to a new study that analyzes five stress factors. The housing bust and a weak job market appear to be prime culprits.

Arizona ranked No. 46 among the 50 states, ahead of only Florida, California, Georgia and last-place Nevada - all epicenters of the housing boom/bust cycle.

The states with the most creditworthy residents mainly were spread across the Great Plains and upper Midwest, according to the study by

"The obvious pattern here is that unemployment tends to drive delinquencies and foreclosures," said Curtis Arnold, founder of Card and author of the study.

Arnold evaluated each of the 50 states across the five categories: average credit scores, foreclosure rates, credit-card delinquencies, bankruptcy rates and unemployment rates.

Arizona had a moderately worse-than-average jobless rate, at No. 35, but was much lower in the other variables, highlighted by the second-worst foreclosure ranking.

"That indicates something else (besides jobs alone) is going on there," Arnold said in an interview.

States with the strongest consumer-credit grades tend to be located where the boom-and-bust real-estate cycle didn't get out of hand.

North Dakota ranked as the state with the highest proportion of creditworthy residents, followed by Vermont, South Dakota, Nebraska and Montana.

These states also tend to have small and fairly homogeneous populations.

A recent Pew Research Center report found that African-Americans, Latinos and even Asian-Americans have seen their net worths decline more sharply than Whites over the past few years. That study cited high Hispanic concentrations in housing-stressed Arizona, California, Florida and Nevada.

Demographics thus could be another factor explaining low-credit profiles in Sunbelt states, though the CardRatings study didn't evaluate that.

One upshot from the study is that everyone in a poor-credit state stands to suffer, not just those with bad credit. This shows up in problems such as weak local banks that can't make loans, foreclosures that push down property values, heightened burdens on municipalities and slower economic growth.

"Even if you have stellar credit, you're not immune," Arnold said. "You are affected by your neighbor's credit."
Impact on cards

As the federal debt-ceiling deadline nears, here's a number to keep in mind: 14.1 percent.

That's the current average advertised interest rate on credit cards tracked by Many observers have speculated that consumer borrowing costs could rise if the government's debt and budget impasse doesn't get resolved in a constructive way, and credit-card rates could be quick to increase.

"Nearly every credit card on the market today is a variable-rate card," said Bill Hardekopf of

Most cards are tied to the prime lending rates set by banks, and they would rise if banks push their prime rates higher.

Unlike other rate hikes, which require a 45-day advance notice, that's not the case with increases tied to the prime, Hardekopf explained in a commentary.

"That increase can take place immediately," he said. "But any interest-rate increase will only apply to your future purchases, not your existing balance."

Incidentally, card interest rates are up from an average 11.6 percent tracked by in May 2009, when the government passed sweeping credit-card-reform legislation.
Complaints aplenty

Credit and debt issues ranked No. 2 on a new list of top consumer complaints.

Fraudulent offers to help save homes from foreclosures were among the fastest-growing complaints, according to the study by the Consumer Federation of America and National Association of Consumer Agency Administrators.

Credit/debt complaints trailed only those involving autos that centered around misleading advertising, sales and repair problems and towing disputes.

In the credit/debt area, the study's authors reiterated several reminders for consumers, such as these:

- Consumers can request in writing that debt collectors refrain from calling them.

- For-profit debt-relief and debt-settlement firms can't charge fees until they've obtained a satisfactory settlement.

- Mortgage-relief services can't charge for their help until they provide a written offer to modify a loan that the homeowner has accepted.

by Russ Wiles, columnist The Arizona Republic Jul. 31, 2011 12:00 AM

Study: Arizona among worst states for consumer credit

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