The growing debt load carried by U.S. consumers is ringing alarm bells from Main Street to Wall Street. Data released this week by WalletHub paints a sobering picture of American credit health, with every state experiencing a decline in average credit scores over the last year.
Add WalletHub’s grim report to a roster of bad news for the state of American consumer. The latest quarterly Household Debt and Credit Survey from the New York Fed showed that total U.S. consumer debt was nearly $8 trillion at the end of the third quarter of 2024, a record high. A February 2024 report from Experian found that average total consumer household debt in 2023 was more than $104,000, up 11% over three years.
As Americans struggle with growing debt levels and late payments, the Federal government has its own debt struggles. The decaying financial outlook reflects the deep economic challenges facing the new Trump administration as it takes charge.
A nationwide trend: All 50 states saw declines in credit scores
The Wallhub report reveals that all 50 states saw their average credit scores slide lower between the third quarter of 2023 and the third quarter of 2024. This uniform decline suggests a systemic issue rather than isolated regional challenges.
WalletHub analyst Chip Lupo explains that credit scores are down nationwide due to rising debt levels, increased delinquency, and higher credit utilization. “Many Americans are relying more on credit to manage expenses, which can strain budgets and lead to missed payments,” Lupo told Fortune via an email interview.
Lupo also notes that inflation is a significant factor, causing living costs to rise and pushing more consumers to rely on credit to cover basic needs. He cited a recent WalletHub survey showing that Americans are six times more likely to be worried about inflation than credit card debt, showing short-term thinking rather than planning for the long-term.
Least affected states: Maine, Oregon, and Kentucky
While no state emerged unscathed, some weathered the storm better than others. Maine, Oregon, and Kentucky tied for the lowest drop in credit scores, with a .15% decrease year over year.
States least affected share healthier financial habits such as lower overall debt levels, better financial literacy, and fewer late payments.
“Residents in these states also demonstrate more responsible credit usage, maintaining lower credit utilization rates and delinquency rates, which helps keep their credit scores more stable despite national economic pressures,” says Lupo.
Hardest hit states: Alaska, Vermont, and Mississippi
At the other end of the spectrum, Alaska, Vermont, and Mississippi saw the biggest drops.
- Alaska experienced the most significant drop, with a 1.02% decrease.
- Vermont followed with a .85% decline.
- Mississippi rounded out the bottom three, losing .79%.
According to Lupo, states with the biggest declines face specific challenges that impact credit scores. “Alaska has the highest credit card debt per capita and elevated credit utilization, while Mississippi has the weakest state economy, low financial literacy, and the highest debt delinquency rate,” he says. All these factors lead to missed payments and higher financial stress, driving down credit scores.
What lower U.S. credit scores means for you
This universal downturn in credit scores has significant implications for your financial life. If your score has taken a hit:
- You might face reduced access to credit or less favorable terms for loans and credit cards.
- Your insurance premiums could potentially increase.
- You may encounter challenges in renting apartments or securing certain jobs.
It's wise to try to improve your score and build good credit over time. In many cases, one of the most actionable ways to improve credit score is to pay down your credit card balances.
“Your credit utilization ratio (the relationship between your credit card balances and credit limits) can have a meaningful impact on your credit score,” says Michelle Black, author and credit card expert. “This scoring factor plays a major role in the ‘amounts owed’ category of your FICO Score—a category that’s worth 30% of your score.”
As you pay down credit card balances, your credit utilization ratio should go down as well. In general, a lower credit utilization ratio should help your credit score, as long as you’re not making other missteps that would hurt your score, such as missing payment due dates.
Remember, it’s essential to pay your bills on time—every time—and to keep your credit utilization ratio low in the case of credit card accounts and to keep your payment history intact. You may be tempted to close each credit card once you pay off the balance, but doing so will reduce your available credit and therefore your utilization percentage may go up. If you have the discipline not to run up charges again, keeping it open is a better option.
The takeaway
These findings underscore the critical importance of managing your credit in challenging economic times. Regardless of your state's ranking, you should focus on building solid financial habits.
As the economic landscape continues to evolve, staying informed about your personal credit standing and understanding the factors that influence it can help you weather financial storms and position yourself for recovery when conditions improve.
In a climate where credit scores are under pressure nationwide, your knowledge and proactive management become your best tools for maintaining financial health and resilience.
