Higher Taxes Equal Lower Credit Scores

There’s bad news brewing for Illinois residents.  This New York Times article identifies an almost unconscionable 66% increase in the state’s income tax rate, from 3% to 5%.  Additionally the corporate tax rate will go from 4.8% to 7%.  This will inevitably mean less disposable income and less discretionary spending by employers.  The real question, in my mind, is how is this going to impact the credit scores of our friends in Illinois.

This is a simple math problem.  Whenever you have less money in a paycheck you have less money to put toward bills.  Now, I’m not suggesting there will be a large scale increase in the default rates of Illinois residents but I am suggesting that it will go up to some extent.  Even worse, the decrease in “take home” will also place a strain on the discretionary amount, which means more money will NOT be spent reducing credit card balances.

An increase in default rates plus a lack of credit card debt reduction equals lower credit scores.  Why?  Because anything that doesn’t cause your scores to increase can and will likely cause your scores to decrease.  Think about it.  Can this in any way help to improve the credit scores of Illinois residents?  I think not.

That’s not good news especially because Illinois residents currently boast a healthy average FICO score of 699.  As lenders maintain more difficult underwriting standards the impending drop in scores could mean more expensive credit and insurance for Illinois residents.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit contributor for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

Categorised in: Credit Cards, Credit Report, Credit Score, Debt, Debt Consolidation, Debt Management, Financial, Saving Money

This post was written by John Ulzheimer