Tuesday, May 30, 2017

The Economic Fortunes Of Red And Blue States Can Be Tracked Through Their Diverging Credit Scores

The creditworthiness of many red states have been on the decline.


By Quentin Fottrell
MarketWatch
May 30, 2017

A certain number can tell you a lot about a person’s — or even a community’s — financial health.

Residents of most U.S. states that voted for President Donald Trump last November had an average credit score nearly 20 points lower than people in states that voted for his Democratic rival Hillary Clinton, according to this analysis of Experian’s “Premier Aggregated Credit Statistics” using the VantageScore 3.0 credit score model for each zip code in each state. While credit scores don’t necessarily reflect people’s income or debt levels, they do give a bird’s-eye view into people’s ability to repay personal loans, manage their finances and pay off credit cards on time.

Except for Wisconsin, swing states that voted for Barack Obama in the 2012 election and Trump in 2016 had a decline in their average credit score. The swing states of Michigan, Ohio and Pennsylvania all saw a decline in average credit score from 2012 to 2016. In Florida, the average credit score dropped to 672 in 2016 over that period. In Michigan, it fell to 683 from 690 and fell to 694 from 700 in Pennsylvania. The study by LendEdu, a consumer finance comparison site, aggregated credit scores for each zip code and adjusted them for state population size.

The VantageScore 3.0 used in this study runs the gamut from 300 to 850, a numerical scale that is commonly used, but certainly not the only credit-score model used. The lowest score is regarded as deficient and the highest as excellent. Different lenders obviously have different criteria when it comes to loaning money, and may approve borrowers with a mediocre credit score. A high score generally means that the individual in question has been paying their bills on time, or only uses a small percentage of his or her available credit on credit cards.

Other research appears to support this theory. Southern states — Mississippi, Arkansas, Louisiana and Louisiana, which all voted for Trump in 2016 — typically have lower credit scores than the rest of the U.S., personal-finance site ValuePenguin reported. “These regions have the lowest percent of the population with an open credit card or home equity line of credit,” they wrote. “At the same time, credit health in states like Minnesota and North Dakota has exhibited resilience in the face of economic downturn.” North Dakota voted for Trump, but Minnesota voted for Clinton.

ValuePenguin says it’s more revealing to look at the trajectory of credit scores and, from that viewpoint, “the same states appear to be underperforming as compared to the national average.” In South Carolina, 20% of the population was reported as having weak, struggling, or declining credit — defined as having a bill that was 60 days or more overdue — followed by Mississippi (19%), and Alabama, Georgia, Louisiana and Texas (all with 18% declining credit), and Oklahoma, Tennessee and Florida (all with 17%). All of those states voted for Trump in 2016.

Of course, this isn’t the only measure of red and blue states in the run-up to the election. Trump states had the most lackluster job growth in the last two years. Since 2015 there has been a noted drop in jobs growth and more so in red rather than blue states, according to Jed Kolko, chief economist for jobs site Indeed.com, who crunched state Bureau of Labor Statistics. Globalization and technological advancement have restrained growth in U.S.-based manufacturing jobs. At the same time, the technology sector has continued to surge.

The Midwest and South have been gutted by globalization, experts say. “We know that many of the voters who propelled Donald Trump to victory were in rural areas,” Mark Hamrick, Washington, D.C. bureau chief at personal-finance website Bankrate.com, told MarketWatch. “Generally, these are areas of the country, like my own hometown in Kansas, which have seen declining population precisely because of a lack of economic opportunity. By contrast, people are attracted to areas where jobs are available or even plentiful, which tends to reinforce the cycle.”

Red and blue states are connected to the fortunes of the U.S. economy, with perhaps oil-producing states being the major exception. Globalization and technological advancement have restrained growth in U.S.-based manufacturing jobs, Hamrick said. At the same time, the technology sector has continued to surge. The decline in crude oil and commodity prices interrupted the boom in those sectors and regions reliant upon them although we may well have seen the worst of that since prices have rebounded.


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