Monday, April 25, 2005 | 11:10 a.m.
Late payments and the excessive pursuit of new accounts are dragging down the credit scores of Nevada residents.
Based on February 2005 information, the average credit score in Nevada was 655, compared with a national average of 676, according to the National Score Index compiled by the credit rating agency Experian.
Only Texas fared worse among the 50 states.
The average credit score in Las Vegas was 650. While Experian ranked only the top 20 major metropolitan areas, Las Vegas' score matched Dallas, which came in at the bottom of the list. Minneapolis was the best with an average score of 676.
"I'm not surprised," said Gail Burks, chief executive of the Nevada Fair Housing Center Inc. She pointed to rising housing prices and higher interest rates as pressures for consumers struggling to keep up.
Linda Williams is branch manager for the Las Vegas office of BNC Mortgage, which specializes in loans for consumers with lower credit scores. She pointed out that a 655 credit score is not that bad.
"Anything above 620 is still considered good," Williams said.
Also ranking low were the neighboring states of Arizona (658) and New Mexico (662). Louisiana also posted an average score of 662.
The best state for average credit scores was South Dakota (708), followed by Minnesota (707), North Dakota (706) and Vermont (704). Individual scores can range from 330 to 830, according to Experian.
The most glaring issues facing Nevada residents were late payments and excessive credit inquiries, said Heather Greer, a spokeswoman for Experian.
The average number of late payments for each "credit active" Nevada resident as of February 2005 was 1.06. The national average was 0.88. Residents of top-ranked South Dakota averaged just 0.48 late payments. Late payments stay on a credit report for seven years.
Payment history is the most heavily weighted factor in determining credit scores, Greer said.
Also factoring into the credit score is the pursuit of new credit, Greer added. Nevada was the top state in the nation in terms of credit inquiries per resident with 3.97 through February 2005, the index said. The national average is 2.43, and the state with the lowest number of inquiries was Mississippi with 1.28. Credit inquiries stay on a credit report for two years.
Low credit scores can affect the interest rates lenders are willing to offer for credit cards, automobile loans and mortgages. In addition, credit scores can determine everything from insurance rates to the need to put up a deposit for utility services.
Fair Isaac Corp., which developed the so-called FICO credit scoring system, said that nationally, 74 percent of the population has a score of 650 or better. Only 11 percent of the population has a score better than 800 and 1 percent has a score worse than 500.
Fair Isaac said that for a $150,000 30-year, fixed-rate mortgage consumers with a score of 720 or better would be in line for an interest rate of 5.82 percent, translating into a monthly payment of $882.
A consumer with a credit score in the range of 620-674 could have to settle for an interest rate of 7.64 percent and a corresponding payment of $1,063.
Burks questioned how accurate credit scores really are in defining the reliability of consumers. She said that while late payments rank as the biggest factor in credit scores, it doesn't indicate that those consumers will default on loans.
"Is it really indicative of how people pay their bills?" she asked. "Many people pay late, but they will pay before they declare bankruptcy."
In assessing the low scores in Nevada, Joe Laxague, a senior associate attorney with the Las Vegas law firm McDonald Carano Wilson LLP, said Nevada might be getting penalized for its rapid population growth.
He said that the huge number of new residents are probably buying homes, furniture and cars as they establish themselves, driving up the number of credit inquiries.
"To some extent, we might be more dynamic than the model allows," Laxague said.
Keith Schwer, a UNLV economist and director for the Center for Business and Economic Research, agreed. He added that because of the transient nature of Las Vegas, businesses also tend to be more cautious and could be asking for credit checks more often than other cities.
"I think there is, on the part of businesses, a more conservative attitude," he said.
Laxague also said the late payments could be a product of people coming to Nevada "to get a new start."
"I suppose some people also could be getting in trouble with gambling," he said.
Burks said that steps are being taken nationally to better educate consumers on the importance of credit scores.
"At the same time we are defying common sense and making it more difficult to protect your credit," Burks said, calling for better security standards in the wave of breaches at data providers such as ChoicePoint and LexisNexus.