CredAbility’s Consumer Distress Index

CredAbility, one of the largest nonprofit credit counseling and education agencies in the U.S., issues a quarterly index called CredAbility Consumer Distress Index.  This index tracks five categories to determine the financial condition of the average U.S. household – employment, housing, credit, how families manage household budgets, and net worth. Proprietary data collected from more than 630,000 individuals that CredAbility serves annually is also used to determine this Index. The index looks at each category nationally and by state.  The latest index is from third quarter 2011.

The Consumer Distress Index for U.S. households in third quarter 2011 was 66.7, which was a decrease for 69.2 in second quarter 2011. This was the largest drop since third quarter 2008 and the first time the index didn’t increase in the past six quarters. U.S consumers have been in financial distress for 12 consecutive quarters. The Consumer Distress Index is based on a scale of 1 to 100, with a score below 70 indicates financial distress.  Overall the housing and budget categories were below 70, indicating financial distress.  The credit category is not in financial distress and the Consumer Distress Index increased to 84.95, which is the highest in 15 years.

National Highlights

Housing Category – This category’s Consumer Distress Index dropped almost six points to 63.84. Mortgage delinquency rates rose from 7.08 percent in second quarter 2011 to 8.27 percent in third quarter 2011; delinquency rates for rental properties also increased. Housing expenses as a percentage of gross income increased from 31.60 percent in the second quarter to 31.99 percent in the third quarter.

Household Budget Category – The Consumer Distress Index dropped more than eight points to 66 for this category. Consumers’ discretionary income has dropped because of rising food and gas prices, lack of emergency funds and drop in consumer sentiment. The average household has a little more than 2 months’ worth of emergency funds.

Credit Category – The Consumer Distress index in this category increased more than two points to 84.95 in the third quarter 2011, which was the highest in more than 15 years. This is the best news. Consumers continued to manage their credit; delinquency rates fell on both credit cards and loans; and debt as a proportion of income also fell.

State Highlights

Lowest Distress Index States – Nevada has the lowest Index at 59.7, followed by Mississippi, Michigan, Georgia and Alabama. More than 60 percent (31) of the states had scores below 70.

Highest Distress Index States – North Dakota has the highest Index at 81.42, followed by South Dakota, Nebraska, Wyoming and Alaska.  Only 19 states and the District of Columbia had scores higher than 70.

No score improvements – None of the states had an increase in the Index over second quarter. This was due to housing issues and mortgage delinquencies. In fact, nine states went back to financial distress including Texas, New Jersey and Pennsylvania.

“The fragile gains made during the past one and a half years have been swept away in a single quarter,” said Mark Cole, chief operating officer of CredAbility and author of the Consumer Distress Index. “The mortgage delinquency rate is no longer improving and household budgets are being squeezed by rising gas and food costs. Unless consumers are willing to borrow, they’ll need to scale back their holiday spending.”

Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  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.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Monitoring, Credit Report, Credit Score, Debt, Money & Identity

This post was written by John Ulzheimer