Study Shows Increased Credit Risk is Linked to Where You Live

A new study released by TransUnion, one of the big three credit bureaus, shows that consumers are at higher risk of defaulting. According to the study, we're almost 25% more likely to default on payments than we were 10 years ago. But, TransUnion says the quarterly rate of default increase isn't as sharp as it was during the 2001 recession. They believe this is because we haven't yet reached the worst of the recession.

TransUnion further explains that credit risk is higher in some regions of the country than others. Wall Street Journal's The Wallet says that while the data does break down default risk on a geographic level, it shouldn't mean anything for any one consumer and his/her debts. But, it does help us understand why credit card issuers are increasing interest rates for so many consumers, while others seem to come away unscathed. Seven percent of About.com Credit/Debt readers say they haven't been affected by the credit crisis at all, while 34% say they've had an interest rate increase and 29% say they've had a credit limit cut. (See the complete poll results).

Banks realized the regional aspect of credit card defaults some time ago and have already taken action. When Amex took a machete to credit limits last year, cardholders' residences played a factor. In their last earnings call, Citigroup, who raised millions of cardholders' interest rates last year, stated that credit card charge-off rates were higher in areas of high unemployment. The TransUnion study simply puts statistics behind the conclusion that banks had already drawn.

The increased credit risk based on where you live won't be reflected in your credit score because FICO and the credit bureaus don't use that information to calculate your credit score. But, banks often have their own in-house credit scoring and risk modeling systems that could use geography as a factor to review your existing accounts and new applications.

If you're wondering where your state stands in terms of credit risk, The Wallet lists both the top and bottom 10 states based on credit risk:

• Mississippi
• Texas
• South Carolina
• Louisiana
• Nevada
• Georgia
• Arkansas
• Alabama
• New Mexico
• Oklahoma

Several of these states have experienced the most significant changes in unemployment since the recession began. Mississippi, South Carolina, Nevada, Georgia, and Alabama all have unemployment rates that exceed the national average.

State median income could also play a factor in the credit risk of certain states. With the exception of Nevada and Georgia, all the high credit risk states rank low in terms of median income.

But, higher income doesn't necessarily equal lower risk. Of the 10 states with the lowest credit risk, only three rank top 10 in for median income - Hawaii, Minnesota and Massachusetts.

• North Dakota
• Minnesota
• Vermont
• South Dakota
• Iowa
• Hawaii
• Massachusetts
• Washington
• Nebraska
• Montana

All the lowest credit risk states except Minnesota and Washington have unemployment rates below the national average.

Living in a low credit risk state doesn't make you immune to the effects of the credit crunch. More than ever all consumers need to watch their credit scores and make to avoid any actions that could cost points (see 15 Credit Score Killers).