The Best and Worst States to Live in with Bad Credit
Having poor credit isn’t great anywhere, but there are states where it’s not as bad… and some where it’s much worse.
We’ve all heard the credit horror stories. If you don’t know how to manage your credit or find yourself the victim of a credit-damaging fraud, you can find your credit scores plummeting. And plenty of people are going to be looking at those credit scores, especially when considering your loan worthiness. Chances are, if your scores are low, your interest will be high. A 0.5% rise in a mortgage rate might not seem like a lot, but with 30 years to accrue interest and tens of thousands in principle, that rise is going to cost you.
Many of us are living with bad credit scores. There’s a lot we can do to boost those scores, but most of them won’t change overnight. Like it or not, many of us just have to live with bad credit. If you live with bad credit, there are certain locations that will make your life easier and some that will make it much more difficult. At RewardExpert, we sought out to find which states were the best places for someone living with bad credit, and which ones were the worst.
We looked at a series of five factors to determine our rankings:
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Life expenses — As expenses rise, loan totals go up, too. The more expensive a home, the more a lendee is going to need.
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Consumer friendliness of usury laws — Usury laws are put in place to limit predatory lending and the more consumer-friendly limits put in place to curb predatory lending, the easier it is to live with poor credit.
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Status of debt collectors — The status of debt collectors, in terms of licensure and density, affects the ease of living with poor credit. When a state has fewer and more well-trained collectors, a debtor is less likely to get hassled illegally.
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State financial health — Financial health is important for people with low credit. A state with better paying jobs is more likely to offer a debtor the wages they need to pay back loans.
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Complaints per capita — Lastly, a state with a solid history of avoiding complaints is a safer bet for those with low credit.
We took a look at how each state stacked up in those categories and found the top ten best and worst states to live in if you have bad credit.
The 10 Best States to Live in With Bad Credit
Iowa
1
With fines of more than $10,000 for Unfair and Deceptive Acts or Practices violations and one of the lowest usury rates in the country, with a maximum interest rate of just 5.0%, The Hawkeye State is the best place in the country to live without good credit. The prices in Iowa are low too, so the loans most people are taking out aren’t all that high anyway.
Minnesota
2
Of all fifty states, Minnesota has the absolute lowest delinquency rate. With median income levels about 15% higher than average, Minnesota’s economy is strong enough to allow debtors to earn enough to pay back their loans. Also, mortgage rates are below average and so are prices.
Nebraska
3
Nebraska is an extremely financially healthy state. With unemployment sitting at 2.7%, versus the 4.1% national average, and jobs paying well, if you have bad credit, you’re more likely to have the job and the money to pay back the higher interest rate in Nebraska than most places in the country. With good jobs and resources for debtors, it’s no surprise the Cornhusker State has the fifth lowest delinquency rate in the country - which sets a good precedent for debtors with low credit.
North Dakota
4
Things are going well for North Dakotans. It’s an above-average state in terms of financial health and its residents incur less debt than just about any other state. There are few reasons for Dakotans to incur much debt. However, when debtors are in collection it’s more amicable than in most places, as the state has the 2nd fewest number of complaints registered to the Consumer Financial Protection Bureau.
Wisconsin
5
Wisconsin has remarkable financial health, with the 7th highest credit score of any state and the 4th and 14th lowest credit card and mortgage debts in the country. The state has provided citizens with plenty of resources for dealing with debt.
Arkansas
6
Overall, Arkansas is of the cheapest places to live in the country. The Razorback State has the sixth-lowest average home price in the country and, with mortgage loans being one of the nation’s largest debt drivers, Arkansas isn’t a bad place for those with low credit. On top of that, Arkansas has the second-lowest cost of living in the US, giving even debt-strapped Arkansans financial relief during their day-to-day.
Kansas
7
Kansas is a solid state for those with poor credit. It’s a generally inexpensive state operators in the debt collection industry in it generate fairly few complaints for harassing debtors. Even Kansans with debt in collection can expect a pretty smooth experience. Also, things are looking up financially in the state, as average incomes have risen every year over the past five years and are projected to continue on the upswing.
West Virginia
8
The Mountaineer State receives the least complaints for illegal debt collection of any state in the country. It also is home to the cheapest houses in the country and lowest house price growth in the nation. These trends have led it to least mortgage debt in the country. The only thing keeping West Virginia from being even higher on the list is that it’s ranked second-to-last in terms of financial health.
Wyoming
9
By a fairly large margin, Wyoming has the lowest in-state tuition in the country. Educational loans are a common strain for those with poor credit and low tuition rates are helpful in that capacity. Additionally, specific licensure is required to collect debt in Wyoming, which has led to a low density of debt collectors in the state. However, average income levels, according to the Bureau of Labor Statistics, have nearly stagnated over the last five years.
Oklahoma
10
The Sooner State caps interest rates at a maximum of 6.0%,e giving it a solid basis for those with low credit scores. However, the fourth and 16th lowest home and tuition prices, respectively, make Oklahoma a great place for that cohort.
The 10 Worst States to Live in With Bad Credit
Washington
1
Prices in Washington state are sky high. In-demand real estate and schools are making mortgages and school loans extremely expensive, especially for those with credit scores on the lower end. Even worse, legal usury rates are 1.5 times the national average. It’ll cost you; there aren’t many restrictions capping rates and weak state-specific laws against predatory lending.
Tennessee
2
Just about everything about the state makes Tennessee a tough place for people with bad credit. Price rises are slowing, but that’s just about the only thing the Volunteer State has going for it for those with low credit, ranking in the bottom half of every other category and serving up a maximum legal interest rate in the double digits.
South Carolina
3
Home and tuition prices are high, at 41st and 43rd in the country. Judgment loan rates are capped relatively well, at 12.75%, but South Carolina is pretty easy on payday and predatory lenders and the 8.75% maximum legal interest rate is above average - neither of which are doing those with low credit any favors.
Georgia
4
Georgia has the 48th lowest average credit score statewide, according to TransUnion. Georgia’s a state with pretty poor history with credit, leading to the second-highest illegal debt collection complaint volume of any state in the nation. Also, the state has one of the highest maximum judgement usury rates, 30% higher than the national level. A person with poor credit is likely to take on higher interest rates and more debt, so higher maximum usury rates are unfriendly for consumers.
Florida
5
The highest average home prices in the nation are found in Florida. Normally, such a high starting point would discourage high growth rates, but Florida home prices are still growing at one of the fastest rates in the nation. There are a high amount of collectors located in the state to capitalize on the state’s high mortgage payment delinquency. Also, Florida is more lax than most states when it comes to extremely consumer unfriendly payday loans.
New York
6
Driven primarily by its downstate, New York is one of the most expensive states in the country. When consumers with poor credit take out loans, they’re often financing a purchase with a higher price point. With an incredibly high maximum interest rate of 16%, nearly twice the national average, it is one of the least consumer friendly states in the nation in terms of usury laws, as well. The only thing keeping New York from sliding further down the list is that it requires high scrutiny for debt collection licensure and it’s quite financially healthy.
Texas
7
Everything's bigger in Texas. That includes the amount of debt collectors rolling around and the amount of interest you’re allowed to pay on a loan. The Lone Star State is a place on the rise, financially, and job and wage growth are on the way up. However, with judgement usury rates as high as 18%, it’s a still not a great spot to be for those with low credit.
Oregon
8
It might not have the reputation as one, but Oregon is an expensive state. Home prices are rising at the sixth highest rate in the country and it also clocks in at number six in terms of highest cost of living. The number of debt collectors growing quickly and this influx has led to a fairly high level of debt related complaints to the CFPB, as well.
California
9
The Golden State is the second-most expensive state in the country, after Hawaii. It has the second-highest priced homes in the country and in order to purchase these homes, Californians have taken on more average mortgage debt than any other state’s residents. The state also doesn’t require specific licensure for debt collection and there are more debt collectors in California than any other state.
New Jersey
10
New Jersey is home to the seventh-most debt collectors per capita of any state in the country. It's not a big surprise, with legal contract usury rates up to 16% and prices as high as they are. The Garden State is one of the ten most-expensive states in the country to live in and loans taken out there can be subject to pretty high interest rates. There are bright spots, as housing price growth isn't as high as many other states and it has a relatively healthy financial profile, but for the most part, New Jersey isn't a great place for people with poor credit.
What the Maximum Loan Payout Looks Like in Every State
Maximum legal interest rates vary pretty drastically, from the five percent lows in states like Iowa and Wisconsin to the 21 percent highs in Indiana and Rhode Island. This difference, just 16 percent, might now seem like a lot, but compounding is no joke and consumer loans can get pretty large. A consumer looking for an auto loan is looking in the five figure range and a mortgage can run to six or seven. We looked at what the payout would be in each state with a $25,000 loan over a ten year payout window with each state’s maximum legal interest rate to show just how much of a difference these laws can make.
Tap the coins for full data of each state:
Percent means Maximum Legal Interest Rate, $ means Maximum Payout
21%
$59,979
Indiana
1
21%
$59,979
Rhode Island
2
16%
$50,254
New Jersey
3
16%
$50,254
New York
4
15%
$48,400
Montana
5
15%
$48,400
New Mexico
6
15%
$48,400
South Dakota
7
12%
$43,041
Colorado
8
12%
$43,041
Connecticut
9
12%
$43,041
Idaho
10
12%
$43,041
Louisiana
11
12%
$43,041
Vermont
12
12%
$43,041
Washington
13
10,5%
$40,481
Alaska
14
10%
$39,645
Arizona
15
10%
$39,645
Florida
16
10%
$39,645
Hawaii
17
10%
$39,645
Kansas
18
10%
$39,645
New Hampshire
19
10%
$39,645
Tennessee
20
10%
$39,645
Utah
21
9%
$38,003
Missouri
22
9%
$38,003
Oregon
23
8,75%
$37,598
South Carolina
24
8%
$36,398
Kentucky
25
8%
$36,398
Maryland
26
8%
$36,398
Minnesota
27
8%
$36,398
Mississippi
28
8%
$36,398
North Carolina
29
8%
$36,398
Ohio
30
8%
$36,398
Virginia
31
8%
$36,398
West Virginia
32
7%
$34,833
Arkansas
33
7%
$34,833
California
34
7%
$34,833
Georgia
35
7%
$34,833
Michigan
36
7%
$34,833
Wyoming
37
6%
$33,306
Alabama
38
6%
$33,306
Maine
39
6%
$33,306
Massachusetts
40
6%
$33,306
Nebraska
41
6%
$33,306
North Dakota
42
6%
$33,306
Oklahoma
43
6%
$33,306
Pennsylvania
44
6%
$33,306
Texas
45
6%
$33,306
Washington D.C.
46
5,5%
$32,558
Delaware
47
5,25%
$32,188
Nevada
48
5%
$31,820
Illinois
49
5%
$31,820
Iowa
50
5%
$31,820
Wisconsin
51
Helpful Tips For Every State
Regardless of which state you reside in, living with bad credit is a challenge. Your credit score is used to determine whether or not you will be approved for lines of credit, loans, the apartment you want to rent and can even play a role in whether or not you get that job you’ve applied for. That is why it is imperative to begin taking action to improve your score immediately.
While improving your credit score can be a long journey, it is definitely one worth taking. There are no simple “quick fixes” when it comes to addressing the issues found in your credit history. But there are a few things that you can do that will likely help you out of that hole down the line.
Get Informed
The absolute most important thing you should start with when addressing bad credit, is to obtain a copy of your credit report. Afterall, how can you make improvements to your credit-worthiness if you don’t know where the issues are?
You can obtain a free copy of your credit report each year from websites like AnnualCreditReport. Using the information found on this credit report will help you understand where you should be addressing some of the issues that are keeping your overall score lower than it could be.
Find and Address Errors
Once you have your credit report in hand, go through it with a fine-toothed comb and identify any inaccuracies. If an account reported that you made late payments, but you were always on time, despite that fact. If your report shows that you never paid off an account that you thought was taken care of long ago, bring it to their attention.
Each of these negative marks impacts your overall score. So if they are based on inaccuracies, filing a dispute and getting them corrected is well worth your time.
Request Increased Limits
Since 30% of your credit score is based off your current debt owed, any action you can take to improve this number will have a significant impact on your overall score. If making a large payment towards this balance is not feasible for you at the moment, consider another way of adjusting your credit utilization rate.
If you are currently maxed out on all of your credit cards, a simple call to each of your current creditors asking them to increase your limit would instantly improve this figure.
Negotiate Outstanding Balances
If you have a lot of collection accounts still showing up on your report as unresolved, it is a good idea to at least attempt to negotiate some kind of deal with those companies. Oftentimes, these accounts can be settled for pennies on the dollar, as creditors are happy to receive a negotiated settlement amount rather than nothing at all.
Keep Paid Accounts Open
Since 15% of your credit score is determined by your length of credit history, it is important to keep your older accounts open. Even after you have paid an account in full, allowing that account to stay open and active will only improve your score.
Here are some great cards that have no annual fee, so it won’t cost you anything to keep the account open even if you have paid off your balance:
- Citi Rewards+® Card
- Citi Custom CashSM Card
- Citi® Double Cash Card
Keep Paid Accounts Open
If all else fails, you can always try getting added as an authorized user on a family member’s account. Of course, that requires an understanding family member who wants to help and is willing to take the risk.
Here are some credit cards you might want to consider applying for if you are struggling with a less than perfect credit score:
- Citi® Secured Mastercard®
Methodology
We gathered data from a number of sources, including the Census, the Bureau of Labor Statistics, the Federal Housing Finance Agency and dozens more to determine a state’s viability for those with low credit. Overall, states were ranked on five categories: Usury Laws; Prices; Financial health; Complaints per capita, and Presence of debt collectors. These rankings were then weighed to determine a final ranking. To understand why the states earned the ranking they did, it must be discussed why these criteria were chosen as important factors for those with low credit.
Usury laws vary state to state and set a limit on how much a debtor can be charged in interest on a loan. Low credit scores tend to lead to high interest rates, so low maximum interest rates and solid usury laws are essential for living with low credit. Individual state usury laws were gathered by sourcing state financial codes.
Prices affect the principle on a loan offered by a lender to a debtor. States with lower prices can be helpful for those with low credit scores, as loan amounts will tend to stay lower. Price figures were gathered by the Federal Housing Finance Agency, The Department of Education and The College Board. Home prices and tuition were used as a way to determine the average burden for the two most prominent loan types in the U.S. — mortgages and college loans.
Financial health is an amalgam of statistics from the Bureau of Labor Statistics, the Census Bureau and Experian, such as median income, proportion of families earning below $50,000 and the current default rate. States that are financially healthy may be more likely to provide debtors with low credit scores and higher loan payouts the opportunity to earn more to pay back higher totals.
The presence of debt collectors was gathered through the census. Debt collectors are a quality of life problem for many debtors with low credit scores. Those with low credit scores are more likely to default on loans and the absence of debt collectors can be helpful for them.
The amount of complaints levied in a specific state. Some states’ laws are more stringent than others in terms of when a debt collector can and cannot contact a debtor, what they’re allowed to say in these calls and a host of other factors. When debt collectors cross the lines of these laws, consumers can contact the Consumer Financial Protection Bureau and lodge a complaint. States with lower relative complaint totals are generally better for those with bad credit.