Who's got the higher credit scores -- homeowners burdened with heavy mortgage debts, or renters who have no mortgage debt whatsoever?
A new study, based on a nationally-representative sample of three million individual credit files, concludes that it's not even close: Homeowners may lug around substantially bigger household debt loads, but their average credit scores are 55 points higher than non-owners.
The study was conducted by Experian Consumer Direct, a subsidiary of Experian, Inc., one of the three national credit bureaus, as part of its "national score index" research. The scores computed were not Fair Isaac (FICO) scores, but Experian's own proprietary version that uses similar weighting factors such as outstanding credit debt balances, historical repayment performances, utilization of available credit, and length and type of credit. Experian's scoring system runs from 330 to 830, with higher scores indicative of lower risk of default.
Homeowners in the study had average credit scores of 713, while renters scored an average 658. Homeowners with second mortgages or equity credit lines -- even higher debt loads than other homeowners -- scored the highest, an average 739.
The average revolving and consumer debt of renters in the sample was $4,565, compared with an average of $24,565 for homeowners with one mortgage and $42,511 for owners with seconds or equity credit lines on top of their first.
"Consumers with mortgages are doing a great job managing their credit and those with second mortgages are doing even better," said Ty Taylor, president of Experian Consumer Direct.
Homeowners also make more extensive use of their available consumer credit -- credit cards and other personal revolving accounts that come with limits -- than non-owners, according to Taylor. The typical homeowner had a 35 percent utilization ratio on revolving credit trade lines compared with 18.5 percent for renters. Nonetheless, owners had far fewer credit accounts with late payments reported in their files. While 34.7 percent of non-owners had made late payments on at least one account, 22.3 percent of homeowners with one mortgage did, and just 11.1 percent of homeowners with two mortgages.
Why the sharp differences in scores and management of credit between people who own a home and those who don't? The Experian study did not attempt to answer that question. But one theory is that people who buy homes generally have greater financial resources, higher levels of financial sophistication, and are more confident and adept at handling debts than people who do not take on the burdens of property ownership. Academic and federal government studies have shown conclusively that home owners have significantly higher net household wealth than renters -- in part because the real property they control grows in value over time.
Why the higher credit scores and lower late payment rates between homeowners with a single mortgage and owners with two? Again, the Experian researchers did not attempt to come up with an explanation.
But if you agree with the theory distinguishing renters from owners, then perhaps owners who take on home equity credit lines and second mortgages could be seen as the credit elite among homeowners: they are more adept at managing debt loads, they have higher household incomes enabling them to make their payments, higher equity levels to borrow against, and they are more likely to make use of the tax-deductibility of equity debts compared with regular consumer debts, than other owners.
Whatever the reasons, the study results are intriguing and worth a visit to the National Score Index home. Among the features at the site are regional, state and zip code variations in average scores. You can check out how consumers in your zip code or state compare in terms of credit scores with others. Which states have the highest average scores? Would you believe South Dakota (709 average), Vermont (707), North Dakota (706), Montana (704) and New Hampshire (703)?
At the low end of the spectrum: Texas (648 average score), Nevada (654) and Georgia (662).
