As South Carolina residents often say, when national rankings of states are released, thank goodness for Mississippi.
A new report from credit reporting company Experian rated states in terms of subprime consumers — people with low credit scores but not so bad that they can't get a loan — and found South Carolina tied for fourth-worst in the nation.
Mississippi was number one in the Experian study, the worst, with 49.2 percent of consumers in that state counted as subprime borrowers. That means they had credit scores between 580 and 669.
In today's economy, credit scores are more important than ever, but they can be improved by paying attention, understanding how they work and changing behaviors that drag the figure lower.
Having a score below 670 can make it hard to get loans, trigger higher interest rates, increase auto insurance premiums and make it more difficult to rent an apartment. Among those in the U.S. with so-so credit, millennials led the pack, Experian found.
Low scores are financial quicksand. You get a low credit score primarily by failing to pay bills on time. Then, that low score can make debts harder to pay — particularly for those with credit card debt or subprime mortgages or car loans — and that makes it more likely to miss a payment, and missed payments lower credit scores.
In South Carolina, Experian said, 43.8 percent of consumers had subprime credit scores, and nearly a third had taken out subprime mortgages. Nationally, 34.8 percent had subprime scores and 23 percent had subprime home loans.
So in South Carolina, which has below-average household incomes, residents are more likely than most in the U.S. to be paying high interest rates on their debts. The only good news is, the numbers in the subprime groups have been declining for the state.
Experian offers some tips for improving credit scores, and some may seem counter-intuitive.
- "Pay your bills on time." OK, that one's pretty obvious, but it's also the most important. And when it says bills, it particularly means loan payments and medical debt.
- "Keep your credit card balances low." Credit scores consider how much of your credit you're using. So, carrying a $475 balance with a $500 limit looks bad, but carrying the same balance on a card with a $5,000 limit looks good.
- "Open new accounts only as needed." This is much less important than the other recommendations. Taking out a loan or opening a new credit card suggests you need to take on more debt, so those "hard hits" on your credit report can ding your score, a bit.
One common mistake is thinking that closing credit card accounts will improve a credit score. In fact, the result can be the opposite, because closing an account means you have less credit available, so your usage ratio could rise. If you have a card with no annual fee that you don't use, you might be better off putting it away than cancelling it.
Remember that you can review your credit reports annually at no charge and check for mistakes.
And for those who regularly pay their monthly bills on time — for utilities, cable, phone, etc. — it could be worth checking out Experian's free "Experian Boost" option. Basically, you give the company permission to look at your bank records, and if you've been paying those bills on time, that could improve your credit score.