Lawmakers should allow the private sector to grant loans to people with poor credit and give them options that may help them build their credit, according to a report released by the American Legislative Exchange Council (ALEC).
“Our nation is facing an epidemic credit problem, as the number of Americans with poor credit continues to increase while the credit options available to them continue to decrease,” the ALEC report concluded. “Without access to credit, a consumer cannot establish credit, nor can they rebuild credit that has been damaged.”
The report pointed out that having a good credit score is more important today than ever before.
“Credit scores are used by public utilities when determining whether consumers can connect to the utility, by landlords when deciding whether to rent to a consumer, and by insurance companies when setting insurance premiums,” the report said. “Increasingly, employers are reviewing job applicants’ credit scores in combination with background checks and drug testing.”
The report acknowledged America’s sub-prime home loan crisis and a trend toward lawmakers pushing for more government regulations on all types of loans.
But, ALEC stressed, the problem is not the availability of too much credit.
“It is the large and growing number of Americans with poor credit,” its report said.
Credit scores range from 300 to 850. A lower score means a higher credit risk. The Federal Deposit Insurance Corp., ALEC said, has determined that a credit score above 661 is considered a “prime” credit score, while 660 or below is a “sub-prime” score.
Those scores are calculated based on a person’s payment history, amounts owed, length of credit history, applications for credit and types of credit used.
Sub-prime consumers who deal with title or payday lenders, the report noted, have “no ability to negotiate” better loan terms and conditions.
The ALEC report found that two years ago, Texas had the lowest average credit score at 666, while Minnesota had the highest score at 721.
In contrast, Tennessee’s average credit score was 687, while Virginia’s was 700. The national average was 692.
“The per capita personal income of a state may be directly impacted by its average credit score,” said the report. “Over two-thirds of the top 25 states with the highest credit scores were also states with the highest per capita income.”
In addition to advocating measures to improve credit scores, ALEC said lawmakers should support financial literacy programs in K-12 education, as well as for those enrolled in colleges and universities. The National Council on Economic Education said 40 states require teaching in personal finance.
ALEC describes itself as a Washington, D.C.-based nonpartisan membership association for conservative state lawmakers who share a common belief in limited government and free markets.
For more information go to www.alec.org/am/pdf/accesscredit2008statefactor.pdf.