This article was originally published on Yahoo Finance.
A November 2019 study from CreditCards.com ranked the best and worst states in the country at managing their money. The report looked at income and average FICO scores, to create the ranking. South Dakota ranked the best, wrestling the top spot from Montana, which fared the best during the last report in 2016.
The study had several surprises. Seven out of the 10 top ranked states lean Republican, while 8 out of the bottom 10 vote Democrat. But that wasn’t all.
“The hypothesis was that states with higher incomes would have higher credit scores,” the report noted. “It didn’t always turn out that way, however.”
In fact, some of the states with the best credit scores had middling to low incomes. South Dakota, the top ranked state on the list had the second best FICO score — 727 — out of the 50 states and the District of Columbia. But the average income of the state, at $56,274, was ranked 33 out of 51.
“It shows that it's not just about how much you have, but also how you manage it,” said CreditCards.com industry analyst Ted Rossman. “In some of these high-cost states, even though they make more, it goes right out the window. In D.C., they have the highest income in the country but they also have more debt than anyone else.”
“It is better to live in a low-cost place even if you don't make as much. It seems to stretch further,” he said.
The worst money managers included states with large urban areas, such as Washington, D.C., Maryland, Texas, and California. The best states were often more rural, such as Montana, Wisconsin, Maine, and Nebraska.
So why are people in states with higher incomes worse with their money than those with lower income?
Rossman says cost of living and the cost of lifestyle might be to blame.
“Lifestyle creep, and a high cost of living can drag you down,” he said. “These places with higher credit scores have lower delinquencies. They’re paying their bills on time.”
Rossman also noted that the states on the top of the list had older populations, which also might have given their credit score a boost. That’s because the longer your credit history, the better your score is going to be.
“At the bottom end of the spectrum it was the reverse,” he added. “D.C. has one of the youngest populations in the country. A lot of them are immigrants. And if you’re new to the country, your credit history doesn’t translate.”
Higher debt burdens also play a role. The coastal states, Rossman pointed out, had the “highest debts” in the country. Washington D.C. had average debt of $86,730, exceeding its average income of $85,203.
“It just costs so much more to live in D.C.,” Rossman said. “Even though they have a higher income, it’s not keeping pace [with the cost of living].”
Since the last study in 2016, some states jumped up in the ranks, or had some steep falls. New York was the biggest decliner, falling 28 positions from 10 to 38 on this year’s ranking. New Hampshire, improved the most, leaping from the 42nd spot in 2016 to number 22 this year.
“If you can pay your bills on time, and keep your debts low, that’s most of the battle right there,” Rossman said.
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