A recent nationwide credit analysis revealed there’s more to a consumer’s financial behavior than just the way he or she lives. Experian’s 2012 State of Credit report concluded where the consumer lives might also be a factor, aside from their spending habits.
As bizarre as it may sound, your neighborhood could have an impact on your spending habits, financial behavior and, ultimately, your credit.
Has this happened to you?
How You Live
It’s no new news that economic conditions play an influential role in a consumer’s financial circumstances.
According to the State of Credit report, factors such as foreclosures and unemployment show a strong negative correlation to a city’s average credit score, meaning when the foreclosure or unemployment rate decreases, the city’s average credit score increases.
For instance, Bakersfield, Calif., made the list of the “most-improved cities” in 2012 with a 10.1 percent decrease in unemployment and a 15 percent decrease in foreclosures. The same year, the average credit score in the city increased by eight points.
Consumer challenges can also take a toll, often in ways similar to that of economic conditions. In the same year that Bakersfield’s average credit score increased by eight points, the average consumer debt decreased by 1.24 percent – more than any other city that year. Consumers also made 27 percent more payments on time.
However, as the report listed the cities with the highest and lowest average credit scores, a pattern in the rankings (below) suggested there’s more to the score than just uncontrolled circumstance.
|787 Minneapolis, MN||688 Harlingen, TX|
|786 Madison, WI||702 Jackson, MS|
|785 Wausau, WI||706 Corpus Christi, TX|
|784 Sioux Falls, SD||708 Shreveport, LA|
|783 Cedar Rapids, IA||709 Monroe, LA|
|783 San Francisco, CA||710 Augusta, GA|
|781 Green Bay, WI||710 El Paso, TX|
|779 La Crosse, WI||710 Myrtle Beach, SC|
|778 Boston, MA||711 Memphis, TN|
|777 Duluth, MN||713 Savannah, GA|
The Value of Public Perception
Unlike payment history, credit history and other factors that are actually used to calculate the score, the affect of geographical location is an indirect one. It doesn’t so much affect the score as it affects the consumer or a consumer’s financial behavior.
Unfortunately, much of a consumer’s financial behavior can depend on the consumers around them, according to Tom Ferry.
“Your decision to live in a particular neighborhood, drive a certain car, send your kids to private school wearing designer labels, the watch on your wrist, the vacations you go on, the clubs you belong to… All of these things are tied to what someone else thinks,” says Ferry.
But at what cost?
The Cost of Keeping Up
Marketing professor and expert on the sociology of consumption Thomas O’Guinn recalls a conversation he once overhead between a potential borrower and reluctant loan officer at a credit union in Los Angeles.
“A man was clearly borrowing quite a bit of money. Given all of the angst, I was convinced it was for a house. It it turned out to be for a Mercedes,” says O’Guinn.
Even among consumers who can’t really afford it, this desire to “keep up with the Joneses” is all too common. Long lines of debt, bankruptcy or foreclosure are wagered on short-term satisfaction, which eventually destroy consumer credit.
Harlingen, a south Texas city, has the worst credit in the U.S., with an average score of 688. Minneapolis leads the nation in average credit scores, with an average score of 787. But what makes Texas so different than Minnesota?
Despite being cited as the least expensive city to live in the U.S., more than one-third of the residents in Harlingen live below the poverty line and more than half are unemployed. The average resident carries almost $24,000 in debt. However, in Minneapolis, only 27 percent live below the poverty line.
Poverty, debt and unemployment – as well as the influence from your neighbors – can have impact on your credit as well.
Don’t Keep Up
The debt-ridden still attempt to keep up with the debt-free, according to a story by the American Society. That’s inevitable. Consumers will always want the flashiest cars, newest electronics and best furniture.
The good news? It is possible to resist the urge to “keep up,” especially if it could preserve a financial future. By reevaluating what is truly important and ignoring the trap of public perception, it just takes a little time and dedication to get back on track.
Photo courtesy of LancerE