Even if you make your payments on time every month, you can still damage your credit score in a major way by using too much of the credit available to you.
The credit utilization ratio, a measure of your total revolving credit balance divided by your total revolving credit limits, makes up roughly 30% of your credit score, which means it’s no small part of what lenders look at when considering what interest rate and terms to give you on your mortgage, car loan or other credit cards. If you want to see where your utilization stands in comparison to the national averages, you can use the free Credit Report Card.
We decided to use data from the Experian-Oliver Wyman Market Intelligence Reports and Experian’s IntelliView tool to examine which parts of the U.S. are closest to their credit limits. We took the average bankcard balance per consumer in each state and divided it by the average bankcard limit in each state for the first quarter of 2013, the most recent data available. To be fair, these states aren’t 100% maxxed out on their credit cards, but they may be doing damage to their scores nevertheless.
“In most scoring models, the credit utilization ratio represents approximately 30% of your credit score. That makes it a critical issue, but most people aren’t exactly clear as to what it is,” says Credit.com Co-Founder and Chairman Adam Levin. “Though there isn’t an exact code, the rule of thumb is that consumers who use less than 10% of their available credit tend to be those with the highest credit scores.”
All 50 states had a credit utilization ratio that was above the recommended 10% or less, and the states with the highest ratios all fell between the 20% and 30% range, meaning many residents may be damaging their credit by putting too much on their plastic.
Alan Ikemura, Senior Product Manager of Experian Decision Sciences, says the good news is that bankcard utilization ratios are generally on the decline.
“We’re actually seeing the utilization ratio going down overall,” he says. “Except for the deep subprime groups, which had an average utilization ratio of 80.9% in 2012 and 81.7% in 2013.”
It’s not uncommon for subprime groups to have high utilization ratios, Ikemura says. Many of these groups are close to being tapped out on their credit lines, which is a signal to lenders that they are a riskier borrower than those with lower utilization ratios.
Here are the top 10 states with the highest bankcard utilization ratios.
Average Balance: $3,503
Average Limit: $16,257
Average Utilization: 21.55%
Louisiana comes in last on our list, with a decently low average balance per consumer. The Bayou state could benefit from asking their credit card issuers to up their limits though — a tactic that can lower your utilization without forcing you to cut spending.
Average Balance: $4,072
Average Limit: $18,857
Average Utilization: 21.59%
The saying goes that “everything’s bigger in Texas” and that must be true of the state’s credit cards too, as the Lone Star state has the highest average limit of all of the states on our list. The high credit limit doesn’t mean that Texans aren’t spending though, as they also have the third highest balance.
8. South Carolina
Average Balance: $3,786
Average Limit: $17,351
Average Utilization: 21.82%
Average Balance: $3,579
Average Limit: $16,396
Average Utilization: 21.83%
Average Balance: $3,469
Average Limit: $15,751
Average Utilization: 22.02%
Arkansas takes the prize for lowest average balance of any state that made our list. Perhaps residents of the Natural state could use a new credit card, which can add to their overall limit and decrease their utilization ratio.
Average Balance: $3,999
Average Limit: $18,047
Average Utilization: 22.16%
Average Balance: $3,618
Average Limit: $16,085
Average Utilization: 22.49%
Average Balance: $4,246
Average Limit: $18,520
Average Utilization: 22.93%
Though Texas took the highest average limit of all the states on our list, Georgia wasn’t far behind. The state could try to skim more money off their monthly expenses to cut their utilization ratio.
Average Balance: $3,384
Average Limit: $14,644
Average Utilization: 23.11%
Though this state comes in second in our rankings, its residents aren’t charging more dollars, on average, than any other state on our list. The high utilization ratio in Mississippi is due primarily to the fact that its average limit per consumer is very low.
Average Balance: $4,563
Average Limit: $16,453
Average Utilization: 27.73%
While all of the other states in our rankings stayed below a 25% utilization ratio, Alaska broke that barrier. This should come as no surprise to those who pay attention to Alaskans’ personal finances. The 49th state has recently topped lists of the highest credit card balances and highest revolving account debt.
Note: The U.S. territories were excluded from this ranking.