By Lauren Stebbins
Financial security is influenced by several types of income and assets, but for most people, arguably the most influential asset is the one of the most intangible: the credit score. An individual’s credit score largely determines credit access and affordability for financing a home, business, car, or other large purchases as well as the cost of insurance premiums. Many employers obtain credit reports for potential new hires and a credit check is often a standard process for rental applications. Credit scores carry even more weight now than they did several years ago as a result of more stringent underwriting by loan originators and the steep decline in the volume of subprime home loans.
According to the CFED Assets and Opportunity Scorecard, Texans rank at the bottom in terms of credit scores. The state ranks 49th in share of consumers with subprime credit scores – 65.3 percent. Texas ranks a little better (36th) in terms of the percentage of borrowers who are late on their debt payments by 90 days or more – 4.49 percent. The state ranks high in the average amount of credit card debt (6th at $6,668) and bankruptcy rate (6th at 1.9 persons per 1,000). Overall, in 2011 Texas has an average credit score of 674 well below the national average of 696.
Although credit scores in Texas on average rank significantly lower than those in most other states, Texas cities did experience modest credit score gains between 2011 and 2012. In cities with populations of 500,000 or more (Houston, San Antonio, Dallas, Austin, Fort Worth, El Paso):
- Austin had the highest scores of 697 (2011) and 699 (2012).
- Fort Worth had the lowest at 664 (2011) and 666 (2012).
- Dallas saw the largest gain from 2011 to 2012 (667 to 670).
- In 2011, nearly half of consumers (46.7% to 48.6%) had subprime credit scores (below 660) in all cities except for Austin (34%).
Among medium-sized cities (100,000-500,000 people):
- Plano, Frisco and McKinney had the highest average credit scores.
- Killeen, Brownsville and Laredo hold the lowest.
- Brownsville had the largest gain (641 to 644).
- The share of subprime consumers in Killeen, Brownsville and Laredo ranged from 55.7 percent to 59.4 percent in 2011, with Laredo on the low end of that range and Killeen on the high end.
In cities with populations of less than 100,000:
- Southlake, Colleyville and Bellaire had the highest average credit scores in 2011.
- In 2012, Southlake and Colleyville experienced small gain in their average credit scores but were replaced in the top three by Warrenton and Silver.
- Cities in this population category with the lowest scores in both years were Easton, La Villa and San Diego.
- Easton, La Villa and San Diego had percentages of subprime consumers ranging from 71.5 percent to 80.2 percent in 2011.
- Easton experienced a significant decline of 8 percentage points in 2012 (80.2 percent to 72.2 percent) while the percentages only decreased by 1 percent and 0.01 percent for La Villa and San Diego.
- In both years, percentages of subprime consumers in Southlake, Colleyville, Bellaire, Warrenton and Silver did not exceed 20%.
A number of small-dollar loan programs, including the Community Loan Center, have emerged in Texas to provide consumers with low credit scores an affordable alternative to costly payday and auto title loans. Nonprofit organizations such as Foundation Communities, Texas Tech University, YWCA of Metropolitan Dallas, YWCA of Fort Worth and Tarrant County, Catholic Charities Fort Worth, and local United Ways offer financial coaching programs to help clients develop financial and debt management skills.
On the policy front, The Texas Financial Education Endowment (TFEE), enacted as part of the 2011 payday and auto title lending reform, officially launched in September 2013. TFEE is administered by the Texas Finance Commission and funded by annual licensing fees paid by payday and auto title lending storefronts. The Endowment will make grants to organizations to improve consumer credit, financial education and asset building opportunities. In 2013, HB 851 (Lucio) would have prohibited state agencies, with some exceptions, from considering the creditworthiness of job applicants in hiring decisions.
Although Texas ranks low on consumer credit scores, local level data indicates that Texans saw improvements in their scores between 2011 and 2012. Financial institutions, nonprofit organizations and policymakers are recognizing the need for increased financial education and access to affordable credit and taking action to meet these challenges. Certainly, the next Legislature has the opportunity to create state policies that move more Texas consumers into the financial mainstream.