Which are the most credit-dependent states?

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Credit Sesame discusses which are the most credit-dependent states.

Consumer debt in America continues to set new records. It seems inflation has increased how much consumers depend on credit to get by from week to week. Eventually, growing debt balances and rising interest rates might push that dependence on credit in America over a dangerous edge.

As concerning as the national picture is, credit dependence is especially acute in some states. Credit Sesame took a state-by-state look at the percentage of consumers routinely using credit. This revealed some sharp differences in the most and least credit-dependent states.

Naturally, rising debt use has the most significant impact on those who rely on debt most heavily. However, even those whose debt use is under control may feel the economic impact of living in a state where consumers are especially dependent on debt.

This makes it wise to know whether you live in a particularly credit-dependent state.

Credit dependency in America

Credit Sesame analyzed data from the Census Bureau’s Household Pulse Surveys to measure credit dependency in America.

These surveys measure many aspects of everyday life, including personal finances. They are conducted every couple of weeks, so they measure where things are now and how things are changing over time.

The surveys also break responses down by individual states, which allows for comparison between different areas of the country.

Credit Sesame focused on the percentage of consumers who used credit (either loans or credit cards) to pay routine expenses within the past week to measure credit dependency. Credit Sesame also compared that percentage at the end of the two most recent calendar years to show how this changes over time.

As of December 2022, 35.45% of Americans had used credit within the last week. That number was up by 6% from a year earlier.

Looking state by state, there is a striking difference in these numbers. For example, the percentage of consumers using credit ranged from a high of 43.73% in New Jersey to a low of 27.94% in South Dakota. Credit dependency decreased in three states plus the District of Columbia during 2022 but rose by a high of 18.75% in West Virginia.

Why credit dependency is becoming riskier

Credit dependency trends are important because credit use is getting riskier.

First, consumer debt reached a record $16.9 trillion at the end of 2022. Higher debt loads mean that more of each future paycheck has to go towards paying back money rather than being available for new spending or saving.

On top of that, sharply higher interest rates have raised the cost of carrying debt. This further erodes the income consumers have left over to make ends meet.

These conditions would get even worse if there is a recession in 2023, as many economists fear. As some consumers lose income, they become less able to keep up with the debts they’ve taken on.

A wild card is the scheduled resumption of student loan payments later this year. That would make it even harder for millions of Americans to make ends meet and keep up with their debt payments.

How credit dependency also affects those with low debt balances

Even if your debt use is controlled, living in a state where consumers have become overly dependent on debt can still affect you.

Today’s debt is a drag on future economic growth. It represents future dollars that will have to go towards paying for past spending rather than driving new growth. That affects the local job market and business conditions.

During severe economic downturns, high debt can become even more of a problem for an area. As people default on debt, home foreclosures rise. That generally drives down housing values for everyone. A distressed economy is also often associated with rising crime rates.

That’s not to say that today’s high debt use will necessarily lead to these adverse outcomes. However, the most credit-dependent states seem to be at exceptionally high risk.

The 10 most credit-dependent states

Based on Credit Sesame’s analysis, here are the most credit-dependent states:

  1. New Jersey. According to the last Household Pulse Survey of 2022, 43.73% of New Jersey consumers had used credit within the past week. This is the highest rate in the nation and is growing more quickly than the national average. The percentage of consumers using credit in New Jersey rose by 10.83% last year, clearly faster than the national increase of 6%.
  2. Delaware. At 43.20%, Delaware had the second-highest rate of consumer credit use. It also had the second-fastest increase in credit use last year, at 16.40%.
  3. West Virginia. West Virginia ranks third nationally with a 41.70% credit use rate. That might be headed higher because the state’s 18.75% increase in credit usage last year was the fastest in the nation.
  4. Nevada. The state’s 39.57% rate of credit use is high, but at least last year’s increase of 4.09% was relatively low.
  5. Hawaii. A 38.85% credit usage rate is high, but last year’s 4.46% increase was relatively modest and the state still has one of the highest average credit scores in the nation.
  6. Florida. Not only is the state’s 38.61% rate of credit use relatively high, but it grew by an above-average 8.51% last year.
  7. Oregon. The 38.26% credit use rate is high and grew by 11.31% last year.
  8. New York. 38.17% is the eighth-ranked rate of credit used in the nation, but last year’s growth rate was only slightly above average at 6.66%.
  9. Massachusetts. Though the state’s 38.01% credit use rate is in the top ten, last year’s increase was a reasonably tame 3.79%.
  10. Montana. This is a state to keep an eye on because not only did its 37.87% rate of credit use rank in the top ten, but so did its 9.98% increase last year.

The 10 least credit-dependent states

At the other end of the spectrum, here are the 10 states with the lowest rates of credit use.

  1. (Lowest rate of credit use) South Dakota. Not only is 27.94% the lowest rate of credit use, but this was one of just three states where that rate declined last year.
  2. Arkansas. The 28.36% credit use rate was the second-lowest nationally; last year’s increase of 3.81% was below average.
  3. Iowa. A 1.24% increase in credit use did little to add to Iowa’s low 29.07% usage rate.
  4. Idaho. This state’s 29.09% credit usage rate was barely higher than Iowa’s.
  5. Louisiana. 29.76% is a relatively low rate of credit usage, but this may in part be due to the state having one of the lowest average credit scores in the nation.
  6. Vermont. The low rate of credit usage (29.83%) in Vermont was helped by the state having the largest decline in credit usage last year, with a drop of 4.11%.
  7. Alaska. Another one of the few states to have a decrease in credit usage last year, Alaska eased its usage rate down to 30.13%.
  8. Mississippi. As with neighboring Louisiana, Mississippi’s low (30.62%) credit usage rate is not all good news. It may be a symptom of having the nation’s lowest average credit score.
  9. New Mexico. A 30.71% credit usage rate was the ninth-lowest in the nation, and the 1-year increase was about average.
  10. Kansas. Along with the tenth-lowest credit usage rate (31.01%), at 0.82%, Kansas had one of the smallest increases in credit use over the past year.

What to watch in credit-dependent states

As described earlier, high dependence on credit may be risky under current circumstances. To keep an eye on how seriously this is impacting economic conditions in any given state, some factors to watch are:

  • Delinquency and default rates. If more people fail to keep up with their debt payments, it’s a sign that debt burdens have become too big to handle.
  • Rising unemployment. If a slowing economy puts more people out of work, expect late debt payments to increase.
  • Falling credit scores. Carrying too much debt is bad for credit scores. If late payments increase, it’s even worse. Average credit scores in a state can be one sign of how bad this is getting.

The above indicators may signal when credit dependency is advancing from a threat to a serious problem.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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