While focusing on rewards and perks can make picking your first credit card exciting, the biggest benefit to opening a student credit card is getting to build your credit from scratch. By starting to build credit before graduation, you can put yourself in a position to take advantage after school.

Read on for some tips to help you make the most of one of these cards and budget effectively as a student.

1. Make a budget and stick with it
2. Spend only what you can afford to repay 
3. Understand APR
4. Make on-time payments
5. Stay on top of your credit

1. Make a budget and stick with it

If you’re not tracking your finances, you won’t know if you’re running up more debt than you can handle. So before you do anything else, make sure you have a good idea of how much money you have coming in and going out each month.

To create your budget, start by listing your monthly income, including income from any jobs you have as well as anything your family provides for you. Then, list your monthly expenses, like food, school supplies, gas and car insurance.

Use a budget calculator to put together an estimated monthly budget to help you achieve your goals. Do you want to save up for a purchase, add to your emergency savings or simply stay out of debt?

Then, consistently track your finances. Here are a few ways to do that.

• Use a tool to record your expenses so you’ll be more conscious of your spending. Get them down in a spiral notebook, an Excel spreadsheet or in your Notes app — whatever works for you.
• Deposit cash and checks directly into your bank account as you receive them.
• Open all bills as soon as they arrive (or when you get the alert) and pay them immediately.
• Use only one credit card while you learn how to build credit.

Following these guidelines can help you avoid putting charges on your card that you can’t pay off.

2. Spend only what you can afford to repay

To start creating the best credit card habits, plan on paying off your balance on time and in full each month. Interest rates on student credit cards can be high, and carrying a balance from month to month could end up costing you much more than what you earn in rewards.

3. Understand APR

The annual percentage rate on a credit card is essentially how much it costs you to borrow money. It’s important to know this because when you charge a purchase to your credit card and don’t pay off your statement balance by the payment due date, it accumulates interest. But if you pay off your statement balance each month, you won’t pay interest on that balance — thanks to what’s known as the grace period.

Generally, credit card companies offer a grace period for new purchases. This period is the gap between the end of your card’s billing cycle and the date your payment is due. With most credit cards, if you pay off your statement balance in full and have no outstanding cash advances, you won’t be charged interest on new purchases during the grace period.

Heads up though: If you make only the minimum payment every month, you could be inviting debt. For example, for a $1,000 balance with an APR of 21%, it’ll take about five and a half years to pay off the balance, and you’ll pay about $662 in interest.

Make sure you know the following details of your card:

• Where to find your statement balance
• The date your payment is due
• The purchase APR and penalty APR
• The date your introductory APR ends (if applicable)

4. Make on-time payments

Late payments can hurt your credit scores. Create reminders for your due date or set up automatic payments.

5. Stay on top of your credit

Building and maintaining good credit can take time. So it’s a good idea to build good habits early, like keeping your credit utilization low and checking your scores and reports regularly. You might even find some errors, which you can dispute with the bureaus.

FAQs about student credit cards

Survey finds that people are not as financially literate as they thought

A Credit Karma Study

Updated June 20, 2024

Written by: Gaby Lapera

A Credit Karma survey conducted by Qualtrics in November 2022 took a look at how well Americans understand credit scores, credit cards, inflation and recessions. The survey also asked participants to score how confident they are in their knowledge about each of the topics.

Read on to learn more.

Financial literacy confidence

At the beginning of the survey, respondents were asked to assess how confident they were about their knowledge of four financial topics: credit scores, credit cards, recession and inflation.

Those who took the survey were more likely to report feeling financially literate on credit scores and credit cards, and a lot less confident on inflation and recession.

Just over 50% of participants rated themselves as “very confident” or “extremely confident” for both credit scores and credit cards. That number fell to 37% and 32%, respectively, for inflation and recession.

There’s not an even distribution across categories. Significantly fewer people rated themselves as “not at all confident.” Instead, respondents tended to cluster in the “somewhat confident” and “very confident” categories.

Results from the financial literacy test show that respondents scored best on the credit cards section, followed by credit scores. Inflation and recession lagged behind. This roughly follows the confidence levels expressed above. People expected to do best on credit cards, and they did.

To make the data easier to parse, the two groups that were more confident were lumped together into a single group labeled “confident.” Take a look at the table below to see how each “confident” group performed on the financial literacy test broken up by topic.

Despite respondents ranking themselves as less confident on inflation and recession, their scores weren’t much different on those topics compared to credit scores — a topic where people felt much more confident.

Overall, an average of only 43% of survey-takers rated themselves as confident. Ideally, that number would be much higher, along with the average score.

Financial literacy confidence by generation

Age played a role in confidence levels. Gen Z respondents felt less confident compared to all other generations across all topics. Millennials often felt the most confident.

To make the data easier to parse, the two more-confident groups were lumped together into a single group labeled “confident.”

But was millennial confidence warranted? Not necessarily. Across the entire financial literacy test, millennials scored an average of 55.1% correct. Meanwhile, the baby boomer+ category had the highest average test score at 67.5%.

Financial literacy confidence by household income

Much as with generations, confidence increases as household income increases. However, having higher income doesn’t necessarily correlate with better financial literacy. On this measure, those who performed the best on the financial literacy test were in the group with a household income between $50,000 and $99,999.

Financial literacy confidence by self-reported confidence level

As noted above, most respondents placed themselves in the “very confident” or “somewhat confident” categories, with very few feeling “not at all confident.”

Interestingly, confidence level seems to have little to no correlation with the average score achieved on the financial literacy test. This could mean that people have a hard time accurately assessing how much or how little they actually know.

Credit scores financial literacy

Respondents did comparatively well on the credit scores portion of the financial literacy test. Survey-takers averaged 61.1% correct on the test. The high score was 100%, while the low score was a fairly dismal 10.6%.

A little over half of respondents (51%) felt confident in their knowledge of credit scores before starting the test. When asked to assess confidence about their knowledge on credit scores after answering questions about credit scores, confidence levels dropped.

The neutral “somewhat confident” group showed the largest gain. Many of those respondents came from the “extremely” and “very confident” groups.

Interestingly, the percentage of respondents rating themselves as “not confident at all” didn’t budge.

Perhaps a little knowledge can be dangerous. It seems that people who rated themselves as confident overall before the test didn’t know what they didn’t know.

Credit score knowledge by generation, household income and confidence level

The baby boomer+ category did the best on the credit scores section, while Gen Z performed the worst. Their average scores were separated by about 10 percentage points.

For household income, the best performance came from those in the $50,000 to $99,999 range. The group with household incomes of $24,000 or less had the lowest scores. The highest and lowest average scores differed by 7.8 percentage points.

In terms of confidence levels, respondents who rated themselves toward the center scores had the best outcomes on this portion of the test. People on either extreme — either extremely confident or not at all confident — performed the worst.

Areas where respondents scored well

Respondents did better on true/false statements on this test. The table below shows questions in which participants performed particularly well — along with the percentage of respondents who answered the question correctly and a link to an article with more information about each topic.

On other credit score topics, respondents were shakier.

What credit scores measure

Respondents were asked what credit scores are supposed to measure. Only about half (51%) of respondents knew that credit scores are a measure of an individual’s risk of not repaying a debt. A full 8% said they didn’t know what credit scores are for at all. The fact that so many respondents couldn’t identify the purpose of credit scores might explain why the average score on the credit scores portion of the test hovered around 61%. 

Worryingly, 61% of respondents also believed that everyone has credit scores. Generating a credit score is not an automatic process. Individuals need to access financial products to start building credit. This is an important concept for consumers to understand if they want to use credit.

Credit score factors

When asked to name the five major credit score factors, only 114 of 1,013 participants were able to correctly identify all five correct answers on a list of 17 options. A further 401 were able to name four out of five factors. That’s 11.3% and 39.6% of respondents, respectively. Here are the five major credit score factors and the percentage of respondents who chose each one.

• Length of credit history – 70%
• Amount of debt compared to available credit – 69%
• On-time payment history – 69%
• Having multiple types of debt – 65%
• Number of hard inquiries – 52%

Below are some of the other options selected along with the percentage of respondents who indicated that each one was a major factor. None of what follows is a major factor in credit scoring.

• Employment record – 20%
• Bank account balance – 20%
• Number of soft inquiries – 15%
• Age – 11%
• Marital status – 8%
• Criminal record – 7%
• Gender – 6%
• Race/Ethnicity – 5%

It’s worth noting that people in marginalized groups may have lower credit scores on the whole because of reduced access to financial products, but the credit scoring models themselves do not take into account an individual’s gender, race or criminal history.

Some of the incorrect options also may have some superficial correlation to the correct answers. For example, older people have had more time to build up a longer credit history. However, all things being equal, being older doesn’t directly affect your scores.

A true/false question later in the survey adds further nuance to part of this data. Up to 52% of respondents believed that getting married affects credit scores. It seems that, although not too many people think that marriage is a major credit score factor, the majority of respondents believe that getting married can be a factor in credit scores.

Things that can be affected by credit scores

Despite thinking that all sorts of factors affect credit scores, many participants seemed unaware of how many things can be affected by credit scores.

Below are the options presented to survey-takers and the percentage who selected that option. People were allowed to select as many options as they wanted.

• Credit card application approval – 46%
• Mortgage application approval – 40%
• Interest rates and terms on new financial products – 35%
• Home or apartment lease application – 34%
• Auto insurance rates – 22%
• Access to utilities – 12%
• Job offers – 9%

In reality, all of the options can be affected by credit scores. Yet only 43% of respondents selected “all of the above.”

One of the true/false questions complicated the findings here. Around 57% of respondents said they believed that people could be denied a job because of bad or low credit — significantly more than on the question above. It’s unclear why there was such a discrepancy between the two questions. Perhaps “job offers” got lost in the shuffle of options.  

Group responsible for collecting information used in credit scores

When asked what group is in charge of collecting information for credit scores, just over half of respondents (52%) knew that credit bureaus is the correct answer. On this question, respondents were offered a total of seven options and were allowed to select as many as they thought were correct. Although 52% marked the correct answer, within that group only 49% knew that “credit bureaus” was the only correct option. The others selected multiple answers. That means only 25.6% of respondents got this question completely correct.

Roughly a quarter (22%) of respondents thought that FICO and VantageScore were organizations responsible for finding credit data on individuals rather than types of credit scoring models. A smaller percentage (19%) thought that banks were responsible. Other options included lenders (14%), the federal government (8%), all of the above (36%) and none of the above (2%).  

Credit cards financial literacy

Respondents performed best on the credit cards portion of the financial literacy test. Survey-takers averaged 66.9% correct on the credit cards test. The high score was 100%, while the low score was 0%.

Credit card knowledge by generation, household income and confidence level

Once again, the baby boomer+ category did the best. This time, however, millennials performed the worst. The difference between the highest and lowest average scores among generations was especially dramatic in this category. Baby boomers+ on average scored 25.8 percentage points higher than millennials. The next best-scoring-group were Gen Xers, who were still 10.9 percentage points behind baby boomers+ on average. Gen X was the most confident group with 56% of Gen X respondents describing themselves as “extremely” or “very” confident.

For the household income category, the $50,000 to $99,999 range outperformed other groups again. Individuals in this group scored an average of 73.9% on the credit cards portion of the test. Despite having the best scores, respondents in the $50,000 to $99,999 were not the most confident group. Instead, the $100,000+ group was the most confident.

For credit cards, survey-takers who rated themselves as “very confident” performed best at 71.4%, which is 11.3 percentage points better than people who were “extremely confident.”

Credit card financial literacy

There were three main topics assessed in the credit card portion of the test: APR, pay off timeline and grace period.

Only 54% of test-takers were able to correctly identify the definition for credit APR as the annualized interest rate on credit cards. But not all participants had credit cards. Among the 802 respondents with credit cards, 452 knew what APR was. While that’s slightly better than the group as whole, it’s concerning that only 56% of credit card holders in the study knew the answer. APR is a crucial expense to understand, especially because APRs on credit cards can add up quickly. Of the respondents without a credit card, only 44% knew what APR means.

Survey-takers did better on a question about the credit card grace period, which is a span of time during which you can pay off your credit card balance without being charged interest. While not all issuers offer grace periods, it can be a powerful tool for managing debt. Overall, 65% of respondents chose the right answer. For those with credit cards, that bumps up to 66.6%. It goes down to 57.2% for survey-takers without credit cards.

One worrying note on grace periods — 8% of respondents thought that a grace period was a stretch of time where you can charge whatever you want to your card and not pay it back.

A bright note did emerge in the credit card literacy data: 82% of participants were aware that making only the minimum credit card payment does not mean you’ll pay off your credit card debt quickly.

Inflation and recession financial literacy

Respondents performed worst on the inflation and recession portion of the financial literacy test. Survey-takers averaged 58% correct on the inflation and recession test. The high score was 100%, while the low score was 0%.

Inflation and recession knowledge by generation, household income and confidence level

Mirroring the results in the credit cards section, the baby boomer+ category performed the best and millennials performed the worst. Gen Z was the least confident on inflation/recession, but still outscored millennials. Millennials were the most confident group about their knowledge of inflation and recession prior to taking the test.

The $50,000 to $99,999 group completes a hat-trick and is once again the best-scoring group in the household income category.

In terms of confidence level, those self-describing as “very confident” in their knowledge of inflation and recession performed best on this portion of the test, followed by the “somewhat confident” respondents. The “slightly” confident participants outperformed the “extremely confident” survey-takers.

Inflation and recession financial literacy

Survey-takers seemed more familiar with inflation than recession. For example, 75% of survey-takers correctly identified the definition of inflation as a sustained increase in the price of most or all products. But only 35% chose the right definition for recession, which is a sustained drop in the value of goods and services produced by the country. Around 17% of respondents seemed to have conflated recession with inflation when they selected the definition of recession as the “prices for goods and services have increased.”

On other aspects of inflation, respondents didn’t score as well. People were split on whether low inflation is always good. A slight majority (52%) believed this was true. However, the Federal Reserve aims to maintain a balance between keeping inflation low to grow the economy and having some wiggle room to cut interest rates to help boost the economy during a downturn. Read the Federal Reserve’s explainer on why it aims to keep inflation around 2% for more information.

Survey participants also seemed a little confused on the role the Federal Reserve plays when it comes to interest rates. Over half (51%) believe that the Fed can directly set interest rates for credit cards and mortgages, which isn’t true. The Federal Reserve may indirectly affect interest rates through changes to monetary policy, but interest rates are set by lenders. Credit Karma has a handy explainer on the Fed’s effect on mortgage rates.

Next steps

If you’re just beginning your personal finance journey, then the following articles might help give you a good foundation on the topics covered in this survey.

• Credit Karma Guide to Credit Cards
• Credit Karma Guide to Using Your First Credit Card
• How to Read and Understand Your Credit Scores
• How to Build Credit from Scratch
• What Is Inflation and How Does It Affect You?
• Is the U.S. in a Recession — Or Heading into One?

Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey from Nov. 4 to 8, 2022, among 1,013 Americans 18 and older to understand levels of financial literacy in regards to credit scores, credit cards, inflation and recession.

Spending on the rise for holidays in 2022

A Credit Karma study based on Mint data

December 21, 2022

Written by: Gaby Lapera

Mint user data provided to Credit Karma shows people spending more on shopping for what might be considered nonessentials this November than last. Yet the number of transactions was down year over year, according to Mint’s user data survey. This suggests that costs are up or that people are making fewer trips to the store or online shop — or perhaps both.

Mint provided November 2022 spending data for 391,036 Americans. The data were focused on Mint’s shopping category, which includes purchases of books, electronics, software, hobby materials or activities, sporting goods and clothing.

Mint data confirm that spending in this broad category of shopping ticked up in November 2022, rising 5.17% above October levels and up 9.10% compared to November last year. Spending rose steadily from week to week in November 2022, with the highest average spend in the week beginning Nov. 28.

Black Friday was on Nov. 25 this year, followed by Cyber Monday on Nov. 28, which may help explain the spending pattern.

Average spending on shopping in November 2022, by week

Another explanation for spending on shopping picking up through November? In Credit Karma’s September 2022 survey on holiday spending, 33% of those polled at the time said they planned to begin their holiday shopping in November, with another 8% angling to pick up presents in December.

Read on to learn more.

Are people spending more on ‘shopping’ during the holidays in 2022?

Yes — looking specifically at clothing, electronics and software, sporting goods, hobbies and books, Mint users spent more in the Mint shopping category in November 2022 than in November 2021. This may change by the end of December, but so far people are spending more on these types of items during the holidays in 2022.

Spending was up for the Mint shopping category overall, and for sub-categories like clothes, electronics, etc.

Holiday shopping spend by category: November 2021 versus November 2022

According to Mint data, Americans spent 6.69% less on sporting goods on average in November 2022 compared to November 2021 (sporting goods experienced the greatest percent decrease in money spent among all shopping categories). Hobbies saw the largest increase in average spending year over year with a 21.28% percent change, a plus-$19 difference. People on average spent the most on clothes in comparison to other shopping categories.

Change in average spending on shopping: November 2021 to November 2022

Note that the median amount spent on shopping in November 2022 was only $531.90, which is $381.30 less than the average. That means that certain individuals spent significantly more than the average, causing the overall average to be pulled upwards.

Holiday spending on shopping by generation

In November 2022, Gen X spent the most on average in the shopping category when compared to other generations. Gen Xers spent an average of $1,127.61. Meanwhile, the Silent Generation and Gen Z spent the least, averaging $586.24 and $608.94 respectively.

Holiday shopping spend by generation

Although Gen Xers spent the most in terms of raw cash in November 2022, the Silent Generation increased their average spending the most year over year on shopping for things like electronics, books, clothing, sporting goods and hobbies. On average, members of the Silent Generation spent 19.40% more in November 2022 compared to last year.

Holiday spending on shopping by income

According to Mint data, the average amount spent on shopping overall increases as income rises. This has held true over the last year.

It’s logical that, generally, those who have more money may spend more, and that people with higher incomes may have more capacity to shop for nonessentials even when inflation is pronounced.

Change in average spend on shopping from November 2021 to November 2022, by income

Image: blackfridaylinesincome

But, interestingly, the lowest income-bracket data saw the greatest percent change in average amount spent on shopping.

People making between $10,000 and $25,000 spent 24.02% more compared to last year — and those in the highest income category in this study only spent an average of 2.84% more year over year. Again, this increase could be more pronounced because of inflation, which may significantly drive up amounts spent even if folks are buying fewer things.

Holiday shopping spend by income

Holiday spending on shopping by debt-to-income ratio

Debt-to-income ratio is a measure of how much you earn compared to how much you owe. A higher debt-to-income ratio means that you have more debt as a percentage of your income. For example, a debt-to-income ratio of 33% means that it would take 33% of your income to pay off your debts. A debt-to-income ratio above 100% means that you owe more than you make.

This ratio can be even more helpful than debt or income alone when trying to understand patterns in financial behavior. A $500,000 debt seems huge, but it’s not that big of a deal if you make $100 million per year — your debt-to-income ratio would be a measly 0.5%.

As with other measures, spending is up year over year across all debt-to-income ratio groups among Mint users.

Holiday shopping spend by debt-to-income ratio

Generally, spending on shopping in November was higher for folks with lower debt-to-income ratios — with an out-of-trend spike for the individuals in the 75% to 100% group. The explanation may be that this group has more income available to spend on extras like holiday shopping on top of servicing debts.

Holiday spending on shopping by credit score

Much like income, there was an apparent positive correlation between higher credit scores and amount spent in the Mint shopping category during the holidays. As credit score ranges increase, so does the dollar amount spent on shopping in November among Mint users.

Change in average spend on shopping from November 2021 to November 2022, by credit score range

Image: blackfridaylinesscores

Interestingly, there’s a trough in spending on shopping for the highest credit score range around January and February 2021, which is also when spending peaks for the lowest credit score range.

Spending on November shopping was up year over year across all score ranges.

Holiday shopping spend by credit score

Holiday spending on shopping by state

Colorado on average spent the most on shopping in November 2022, while Vermont spent the least. Coloradans racked up an average of $1,369.96 in shopping charges; Vermonters averaged $678.71.

Check out the top five states by amount spent on shopping in November 2022.

Greatest average spend in Mint’s shopping category: Top 5 states

Besides having the highest average spending in Mint’s shopping category, Colorado also stands out because it had the highest year-over-year percent change in spending on shopping. Individuals averaged a whopping 62.85% increase compared to the same period last year — spending $528.72 more on average than in November 2021.

Some states had high average spend compared to others in November 2022, but their average amount spent in Mint’s shopping category didn’t actually go up that much. For example, Alaska and Washington both had pretty minimal year-over-year increases in average spending.

Here are the five states with the largest percent increases year-over-year in average overall spending in Mint’s shopping category.

Greatest percent increase in spend in Mint’s shopping category: Top 5 states

Check out the bottom five states by amount spent on shopping in November 2022, with No. 1 being the state with the lowest average spent:

Greatest percent decrease in spend in Mint’s shopping category by state

Note that despite being in the bottom five by dollar amount, Rhode Island and Oregon saw an increase in the amount spent on shopping year over year.

In three states, shoppers spent less than they did last year, with the largest drop of 10.44% (equivalent to about $79) seen in Vermont. Connecticut and New Hampshire also experienced similar, smaller decreases in spending. No other states saw decreases in average spending.

This map shows the difference in amount spent on shopping in November 2022 compared to November 2021. Positive values point to an increase in average spending, while negative values indicate a decrease. Additionally, each state shows the percent change in average spending year-over-year.

November 2021 vs. November 2022: Percent change and raw total difference in average amount spent on shopping

It seems like increases in the average amount spent on shopping in November were clustered around Plains and Mountain states. Smaller increases or decreases were more typical in the Northeast.

Median spend on Mint’s shopping category by state

Because some of the state data for average spend on Mint’s shopping category were so dramatic, it’s important to examine the median as well. Median looks at the center point of a dataset — half the datapoints are larger and half are smaller. This means it’s less likely to be influenced by outsized spending by a few individuals.

When looking at overall median spending on Mint’s shopping category, Colorado isn’t even in the top 10 for amount spent or percent change increase. Take a look at the five states with the highest median spending on Mint’s shopping category in November 2022:

States with the highest median spending in Mint’s shopping category, November 2022

While Utah and Alaska remain in the top five in terms of spending, the other states have been replaced using median as a metric.

Interestingly, these five states don’t represent the largest increases in median year-over-year spending in Mint’s shopping category. In fact, Alaska only saw a 9.1% increase in median spending.

South Dakota had the biggest increase in median spending in Mint’s shopping category compared to November 2021. It went up by 39.03%. South Dakota was just edged out of top five states with the highest median spending in November 2022 with a median spend of $595.56.

Here are the five states with the largest percent increase in November spending in the Mint shopping category compared to last year.

States with greatest percent median spending increase year-over-year in Mint’s shopping category

Vermont had the lowest median spending on Mint’s shopping category in November 2022. Vermonters spent a median of $380.64.

Check out the five states with the lowest median spending on shopping in November 2022:

States with least percent median spending increase year-over-year in Mint’s shopping category

You’ll note that two of the five states with the lowest median spending saw percent change decreases in spending. Both Delaware and New Hampshire experienced drops in median spend year-over-year.

Only one other state had a decrease in median spending compared to November 2021: the District of Columbia. D.C. had a 5.85% decrease, which is interesting because it also was among the top five states with the largest increases in average spending.

This means that there were likely some Mint users who spent way more in November 2022, making the average disproportionately higher. As with Colorado in this study, the median (not the average) helps paint a more accurate picture of what spending is like for the typical DC resident.

Tips for managing holiday spending and debt

Holiday shopping might be in full swing from November on, but it’s not too late to think about how you can best manage your finances when it comes to holiday spending and debt.

• 10 tips to help you manage your holiday debt
• Are Christmas loans a good way to pay for holiday gifts?
• How to use credit card rewards to avoid holiday debt
• Holiday travel tips: Make travel a little easier with these 8 credit card perks

Frequently asked questions

Methodology

Mint provided aggregated data on 391,036 of its customers on December 7, 2022. The data pertained only to the shopping category and its constituent sub-categories of books, sporting goods, software and electronics, and hobbies.

For this study’s purposes, the District of Columbia is considered a state.

Holiday financial stress hitting rural populations harder in 2022

A Credit Karma Study

Updated November 28, 2022

Written by: Gaby Lapera

Does thinking about the costs of the holidays bring you to tears?

If so, you’re not alone, according to a survey carried out by Qualtrics for Credit Karma — and the stress you’re feeling may differ depending on where you live.

In our survey, we asked folks across the U.S. living in urban, suburban and rural areas if thinking about holiday costs makes them “want to cry.” Twenty-four percent of respondents living in rural areas said yes, compared to only 14% of city dwellers.

Read on to learn more about holiday financial stress and the differences we found between rural and urban respondents.

Gift-buying challenges: Rural vs. urban

Buying gifts this year will be a challenge for a lot of people no matter where they live. More than a third of all respondents in our survey (36%) said they can’t afford gifts this holiday season.

Looking specifically at rural versus urban respondents, a higher share of those in remote areas — 44% — said they wouldn’t be able to afford gifts this year, compared to 39% of city dwellers.

Though that’s comparable, there were also some differences in the answers that rural and urban respondents gave as reasons for having trouble with gift-buying.

Among respondents who said they wouldn’t be able to buy presents, a full 70% of rural survey takers cited rising cost of living as a reason for cutting back. In contrast, just 58% of respondents in cities cited cost of living.

The following table shows more about how rural versus urban groups responded when given a choice of factors to cite as reasons for not affording gifts this holiday season.

Gift affordability factors

As with cost of living, a higher share of rural versus urban respondents cited salary, lack of savings, and living paycheck to paycheck as factors in not being able to afford gifts.

One area where rural and urban survey takers seemed more closely aligned: inflation. Some 58% of rural respondents reported inflation as a significant factor in their gift-buying troubles, as did 48% of urban respondents.

Gift-buying issues reflect pay, cost-of-living issues

Cost of living and salary — central to our survey respondents’ gift-buying challenges — are clearly at the root of their broader financial worries. When asked what the main causes of their financial stress were, 32% of people in rural areas said they can’t afford necessities. A smaller but significant share (19%) of city respondents said the same.

Rent, credit card debt and medical costs

Rent was one area of stress reported by more urban than rural survey respondents: 26% of urban survey takers said they had a problem with rent costs, while only 14% of rural survey takers said the same.

Aside from rent, though, respondents in rural areas often reported higher levels of stress than city respondents related to debt, other bills and medical costs.

• 27% of rural respondents consider credit card debt a big cause of financial stress vs. 21% of urban respondents)
• 32% of rural respondents vs. 20% urban report high levels of stress over not being able to afford other bills
• 22% rural vs. 20% urban respondents reported high stress over and medical costs

Urban respondents were also much more likely to report that they were expecting a year-end bonus than rural respondents — 20% versus 7%.

Managing holiday costs

According to the 2019 American Community Survey carried out by the U.S. Census Bureau, poverty rates are typically higher in rural areas than in urban areas, which could offer some explanation for the leanings of our survey findings.

But the results also clearly show that plenty of people in both urban and rural environments are struggling, with the holidays an added challenge. These articles offer some guidance on how to manage holiday costs.

• 10 tips to avoid holiday debt — or get out of it
• Christmas loans: Should you finance your holiday gifts?
• How to use credit card rewards to avoid holiday debt
• Holiday travel tips: Make travel a little easier with these 8 credit card perks

Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey, from September 23 to September 27, among 1,037 American adults ages 18 and older to understand financial stresses around the holidays. Qualtrics’ survey was conducted online and therefore was limited to respondents with internet access. 

Boomers are more financially prepared for the 2022 holiday season compared to other generations

A Credit Karma Study

November 4, 2022

Written by: Gaby Lapera

According to a Credit Karma survey conducted by Qualtrics, Boomers may be more financially prepared than other generations for this upcoming holiday season. They’re more likely to be able to afford gifts and less likely to take on debt.

We used the Pew Research Foundation’s definitions for each generation. However, the Gen Z participants for this study were all at least 18, and our Boomer pool included some Silent Generation participants, as noted in this table.

Generation definitions

Read on to find out more about how financially ready different generations are for the holidays.

Boomers may be more financially secure compared to other generations

Boomers on the whole may be feeling more financially secure heading into this holiday season, especially when compared to younger generations.

Overall, 36% of Americans polled in our survey say they won’t be able to afford gifts this year, and over 48% of Gen Z respondents said they can’t give presents this year. A much smaller share of Boomers — only 28% — said they don’t have the money for gifts this holiday season.

But most Boomers who can’t or don’t want to spend aren’t sweating it. Just 13% say they feel pressure to buy gifts they can’t afford, compared to 42% of Gen Z and 41% of millennials.

Nearly a third of all survey-takers say they don’t plan on taking on any debt this holiday season, compared to 40% of Boomers — although it’s unclear whether that’s because Boomers are choosing to cut down rather than take on debt or because they have the cash to pay for everything outright.

Meanwhile, only 26% of Gen Z respondents anticipate making it through the holidays without taking on additional debt.

In terms of overall holiday spending, only 12% of Boomers plan to spend more than last year. This compares to 21% of those surveyed and 31% of millennials. Boomers are the generation most likely to say they’re planning to spend the same amount as last year. About 40% of Boomers have unchanged budgets for the 2022 season, compared to only 26% of millennials and Gen Xers.

Despite all of this, Boomers are more likely than other generations to report experiencing pain points from inflation. When asked about the factors causing the largest amount of financial stress, 59% of Boomers selected inflation. Gen X and millennials also most commonly cited inflation as causing financial concerns, at 53% and 54% respectively. Gen Z was more concerned with not earning enough money.

Of the 12% of Boomers planning to spend more on the holidays this year, a whopping 70% cited inflation as one of the major reasons. The next highest group is Gen Zers at only 42%.

Of the 28% of Boomers who are having trouble affording holiday shopping this year, 60% blame inflation for making things too expensive. In fact, some 19% of Boomers are relying on cash and gifts to make ends meet through the holiday season, while 46% of Gen Z and millennials are counting on monetary or gift infusions.

Gen Z is the most stressed generation when it comes to money

According to the survey, Gen Z’s mental health and emotional connections have suffered because of money stress. The youngest generation was far more likely to report negative feelings around money, especially when compared to Boomers. This could partially be because they’re in a more financially vulnerable stage of life.

For example, 54% of the overall study population cite money as their biggest source of stress. Meanwhile, that number rises to a massive 70% amongst Gen Z, compared to only 42% of Boomers. Unsurprisingly, Gen Z is also more likely to report that finances have a negative impact on their mental health — 64% say their finances affect them, while only 30% of Boomers agree.

Money troubles are also more likely to hurt younger peoples’ relationships with family, friends and significant others. Gen Z, millennials and Gen X had roughly similar rates, while Boomers scored significantly lower.

Conversely, among those who report finances negatively impacting their mental health, Gen Z is the generation most likely to have sought help for managing the emotional health effects. While 64% of Gen Z got help, that number went down by each generation. Millennials clocked in at 42%, Gen X at 39% and a mere 27% of Boomers asked for help.

‘Gifts for family’ is the most cited reason for holiday debt in 2022

Among all respondents who expect to go into debt for the holidays, the most common way to spend borrowed cash is on gifts for family. Three-quarters of Gen Zers who are using borrowed funds are spending it on family, compared to 53% to 59% for other generations.

Interestingly, Boomers are the least likely to go into debt traveling to see family and friends for festivities at only 14%, while millennials and Gen Z were the most likely at 23% and 22%, respectively. This could be because Boomers as the older generation are hosting family rather than traveling to visit them.

Meanwhile, among those millennials planning to assume debt, 21% will use at least some of that money on a holiday vacation — more than double the share of any other generation.

Many Americans are shopping before October, but November is the most popular month to start holiday shopping

Up to 20% of millennials are stressed about affording gifts because they feel that they’ve waited too long to start thinking about holiday shopping, despite being the group most likely to have begun shopping early. A pretty big share —  31% — began shopping for the holidays before October, including 2% who started shopping for the 2022 season in 2021!

For all generations, November is the most popular month to start shopping. Despite scads of Christmas movies implying otherwise, most folks don’t wait until December to get started. Boomers are the most likely to wait, with 11% saying they plan to start shopping in the 12th month.

One thing to note: This dataset doesn’t account for what month respondents celebrate gift-giving holidays.

Some don’t plan on doing any holiday shopping at all. Over 10% of Boomers and 3% of millennials planned to abstain from holiday spending in 2022.

Next steps

There’s no time like the present to start saving up for holiday shopping or getting a jump on your list. In the meantime, here’s some reading to help guide your potential next steps:

• 6 tips to help you manage your holiday debt
• Are Christmas loans a good way to pay for holiday gifts?
• How to use credit card rewards to avoid holiday debt
• Holiday travel tips: Make travel a little easier with these 8 credit card perks

Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey on Sept. 23 to 27, 2022, polling 1,037 American adults ages 18 and older to better understand financial stresses around the holidays.

Car accidents by state: Worst and best drivers

A Credit Karma Study

October 24, 2022

Written by: Gaby Lapera

In this study, we compiled data on numbers and types of fatal car accidents, insurance rates and populations to determine the state with the best drivers. (Click here for the full methodology.)

The National Highway Traffic Safety Administration’s latest data show there were 33,244 traffic fatalities in the United States in 2019. The most common type of accident involved another motor vehicle, followed by collisions with fixed objects.

According to our study, Massachusetts was the safest state for drivers and South Carolina was the most dangerous. Read on to see where your state falls on the list.

Overall ranking of states with the best and worst drivers

To find out which states had the best and worst drivers, we combined data for each state on average monthly car insurance premium, the number of people killed in car accidents every year, the total number of fatal crashes every year, and the alcohol-impaired driving fatality rate per 100 million vehicle miles traveled.

When all factors were combined, these were the top five safest states for motorists.

1. Massachusetts
2. Minnesota
3. Hawaii
4. New Hampshire
5. Vermont

While the District of Columbia is not considered a state, if it were, it would be the second-safest state in the country for drivers.

These are the top five most dangerous states for drivers.

1. South Carolina
2. Wyoming
3. Louisiana
4. Montana
5. Mississippi

The table that follows shows the rankings for each state in the main categories used in this study. In our rankings, lower is better. For example, Massachusetts is the overall safest state for drivers. It has the eighth-cheapest insurance cost, and it has the second-lowest number of accident-related fatalities and second-lowest number of fatal crashes. Massachusetts has the fewest number of alcohol-related traffic fatalities out of all 50 states.

Overall rankings by state

For another way of looking at the data, check out our map of safest and most dangerous states for drivers.

Safest and most dangerous states for drivers

The map shows that northern states tend to be safer, while drivers tend to be more at risk in southern states all across the country.

Fatal car accidents by state

There are two ways to look at fatal car accidents by state: gross or per capita. The first is simply a raw total of the number of deadly car crashes, while the second reveals the rate at which these kinds of accidents happen.

Here are the five states with the highest number of fatal car accidents overall in 2019.

1. California: 3,316
2. Texas: 3,294
3. Florida: 2,950
4. Georgia: 1,377
5. North Carolina: 1,284

Here are the five states with the fewest fatal car accidents in 2019.

1. Vermont: 44
2. Rhode Island: 53
3. Alaska: 62
4. South Dakota: 88
5. New Hampshire: 90

What do all these states have in common? They’re in the top ten for most- and least-populous states, respectively.

States with larger populations are going to have more accidents because there are more people, but that might not necessarily translate into a higher accident rate. Let’s take Wyoming as an example. Wyoming is the least-populous state in the union, with a total population of 578,759. There were 120 fatal car accidents in Wyoming in 2019, with a per capita rate of 0.02073% of deadly accidents. That translates into 20.73 fatal car accidents per 100,000 people in Wyoming in 2019 — the highest rate in the nation.

By contrast, California has 8.39 fatal car accidents per 100,000 people. Even though California has more deadly accidents overall, you’re less likely to experience a fatal crash in California than in Wyoming.

Here are the five states with the highest number of fatal accidents per 100,000 people.

1. Wyoming: 20.73
2. Mississippi: 19.52
3. South Carolina: 17.91
4. New Mexico: 17.55
5. Alabama: 17.46

Here are the five states with the fewest fatal accidents per 100,000 people.

1. New York: 4.50
2. Massachusetts: 4.66
3. Rhode Island: 5.00
4. New Jersey: 5.91
5. Minnesota: 5.90

One thing to note: The District of Columbia was omitted from the rankings because it’s technically not a state. If it were, D.C. would have the lowest gross and per capita fatal car accidents out of any state. In 2019, there were only 22 deadly car crashes, with a rate of 0.00313% accidents per capita. That means for every 100,000 individuals living in D.C., 3.13 were involved in a fatal car accident in 2019.

Fatal car accidents by state: Change over time

The rate of fatal car accidents has changed over the years. Some states have become safer, while some have become more dangerous.

The table that follows has the states with the largest decreases in deadly auto collisions over the last 10 years.

Largest decrease in fatal auto collisions: 2009 to 2019

Vermont led the pack with a decrease of 36.23%, but New York had the greatest decline in absolute numbers. There were 193 fewer fatal crashes in 2019 than in 2009 in New York. It’s unclear what led to the decrease in accidents, though it seems unrelated to population change.

Some states saw an increase in deadly auto accidents.

Largest increase in fatal auto collisions: 2009 to 2019

Oregon had the largest percent change, while California had the biggest increase in raw total crashes. Similar to the list of states with decreases, population change doesn’t seem to be strongly correlated with an increase in accidents.

On the whole, the U.S. experienced a 7.72% increase in fatal auto accidents between 2009 and 2019.

Average car insurance premiums by state

Insurers are likely using a variety of factors to determine car insurance premiums, like laws related to insurance coverage, age, gender, type of car, location, crime rates, and individuals’ driving records. That means that we can use premiums to help get a handle on how risky insurers think it is to have a car in a particular state.

Insurify provided the average monthly insurance premium for all their users in each state based on data from July and August of 2021.

Here are the top five states with the highest average monthly car insurance premiums in 2021.

1. Rhode Island: $376
2. Michigan: $370
3. Georgia: $354
4. New York: $349
5. Louisiana: $333

Here are the top five states with the lowest average monthly car insurance premiums in 2021.

1. Hawaii: $122
2. North Carolina: $132
3. New Hampshire: $134
4. Vermont: $135
5. Maine: $141

Hawaii’s average car insurance premium is less than half of Rhode Island’s, the most expensive state.

Car insurance premiums vs. fatal car accidents

In our data set, car insurance premiums and per capita fatal car accidents aren’t correlated, which means that we can’t use the rate of deadly crashes to predict car insurance premiums.

This is likely because insurance agencies use a mosaic of factors when deciding how much to charge in premiums. Though traffic fatalities might be in the mix, there could be other components that would influence rates.

Tips for lowering your car insurance costs

Insurance costs can be a drag. If you’re looking for way to lower your premiums, the suggestions below might help. But before you get started, make sure you understand your state’s insurance requirements.

• Shop around with different insurance providers to compare rates. You can use an auto insurance cost-comparison tool like Credit Karma’s.
• Some insurers offer multipolicy discounts, which means bundling different types of insurance like auto and home might net you some savings.
• Ask your insurer if it has any other special auto insurance discounts available. Some companies offer a dizzying variety of discounts to drivers for all sorts of things, like having safe driving records, good grades and extra safety features on the car.
• Having good credit might help lower your car insurance premiums. Auto insurance scores may factor into your rates.
• If you don’t drive your car a lot, you might consider switching to an insurer that offers milage-based rates. Or, consider reducing your coverage on vehicles that you rarely drive.
• You could switch to a higher deductible. The downside of this is that you’ll have to pay more money out of pocket if you get into an accident or damage your car.

Methodology

To identify the states with the best and worst drivers, we analyzed all 50 U.S. states using the criteria below. States were given a score for each factor. Scores were combined and states were then ranked by final scores.

1. Average monthly car insurance premium by state, sourced from Insurify, with data collected on July 26, 2022.
2. Number of persons killed per year by car accidents, 2019, by state, sourced from the National Highway Traffic Safety Administration (NHTSA).
3. Number of fatal car crashes per year, 2019, by state, sourced from the NHTSA.
4. Total state population, 2019, sourced from the Census Bureau’s 2019 American Community Survey 5-Year Estimates. Total state population, 2009 and 2014, sourced from the Census Bureau. State populations were used to calculate the number of fatalities per capita (as a percentage) and number of fatal crashes per capita (as a percentage) in each state.
5. Alcohol-impaired driving fatality rate per 100 million vehicle miles traveled (VMT), 2020, by state, sourced from the National Highway Traffic Safety Administration.

Sources

• U.S. Census Bureau’s 2019 American Community Survey 5-year estimates
• U.S. Census Bureau’s State Intercensal Tables: 2000-2010
• State Population Totals and Components of Change: 2010-2019
• Insurify Average Auto Insurance Premiums by State
• NHTSA Traffic Fatalities by Year and State
• NHTSA Alcohol-Impaired Driver Fatalities

Average American debt by age and generation in 2023

A Credit Karma Study

Updated April 29, 2024

Written by:Andrew Depietro and Gaby Lapera

According to data on 78.2 million Credit Karma members, members of Generation X (ages 43 to 58) carry the highest average total debt — $61,036. In this study, debt includes the following account types: auto leases, auto loans, credit cards, student loans and mortgages.

Read on for more findings, including a breakdown of debt by age and generation across states and various account types. Learn more about our methodology.

Age group with highest average total debt:

43- to 58-year-olds (Gen X)

Age group with highest average credit card debt:

43- to 58-year-olds (Gen X)

Age group with highest auto loan debt:

43- to 58-year-olds (Gen X)

Age group with highest average mortgage debt:

27- to 42-year-olds (Millennials)

Age group with the highest average student loan debt:

59- to 77-year-olds (baby boomers)

Age group with highest average monthly debt payment:

43- to 58-year-olds (Gen X)

Average total debt by age and generation

Credit Karma members closest to midlife carry the most average total debt. Generation X averages $61,036 in debt, followed by baby boomer members, who have an average total debt of $52,401.

The youngest Credit Karma members, those of Generation Z, carry the least total debt on average —  $16,283 — followed by members ages 78 to 95, the Silent Generation. These members carry an average total debt of $41,077.

Average total debt by age and state

Several of the states with the highest levels of average total debt are also states with some of the highest costs of living in the country. According to the Missouri Economic Research and Information Center’s Composite Cost of Living Index, Hawaii, Washington, D.C., and California rank as the No. 1, No. 2 and No. 4 most expensive places, respectively, in terms of overall cost of living. These three places are also the top three areas in which Gen X members carry the highest average total debt.

Here’s a breakdown of the states where each generation has the highest average total debt:

• Gen Z — Alaska, $23,116
• Millennial — District of Columbia, $76,833
• Gen X — District of Columbia, $96,217
• Baby boomer — Hawaii, $93,354
• Silent — Hawaii, $86,749

Average of total debt by age and by state

Average auto loan debt by age and generation

The average auto loan debt carried by each age group ranges from $19,909 to $26,765. Members ages 43 to 58 years old (Gen X) carry the most auto loan debt, with an average of $26,765. Members age 78 to 95 (Silent Generation) carry the least auto loan debt, with an average of $18,539.

Following closely behind the Silent Generation with the least amount of auto loan debt are members of Gen Z, who carry an average of $19,909 in auto loan debt. Members aged 27 to 42 (millennials) carry the second highest amount of auto loan debt, followed by members aged 59 to 77 (baby boomers).

Average auto lease debt by age and generation

Though you don’t own the car once your auto lease ends, a car lease is still a form of debt obligation. Members age 78 to 95 carry the least amount of auto lease debt — $8,046 on average. On the other end of the spectrum, members that carry the most are those ages 43 to 58, with an average auto lease debt of $11,825.

Average credit card debt by age and generation

Gen X members carry the most credit card debt, with an average of $8,266. On the flipside, Generation Z an average of only $2,781 in credit card debt, the lowest amount of all generations. For a full breakdown of credit card debt, check out Credit Karma’s report on the average credit card debt in America.

Both baby boomer members and Millennial members carry more credit card debt on average than the Silent Generation. The average of next credit card payments largely align with the average levels of debt carried.

Average mortgage debt by age and generation

Mortgage debt tends to be the largest source of debt for Credit Karma members when compared to other forms of debt, such as auto loans or credit cards. Whereas auto loan and credit card debt tend to be in the single-digit or double-digit thousands, mortgage debt tends to range in the hundreds of thousands. Millennial members carry the highest average mortgage debt at $261,484, while members in the Silent Generation carry the lowest mortgage debt, with an average of $163,702.

Gen Z and baby boomer members carry similar average amounts of mortgage debt — $195,849 and $188,034, respectively — even though their average account ages are vastly different. This could suggest that Gen Z members may be choosing homes that are less expensive — or that many baby boomer members have refinanced over the years and extended their mortgage loan terms.

Image: Home_Home-1

Average Mortgage Debt in America in 2022:
A Credit Karma Study

Average student loan debt by age and generation

The average student loan debt carried across generations is $33,534. Baby boomer members carry the most student loan debt, with an average of $43,554. Gen Z members carry the least student loan debt, with an average of $15,456. Four out of the five generations of Americans carry an average student loan debt of more than $30,000.

Though members of the Silent Generation have lower average student loan debt than Gen X and baby boomer members, their average next payments are significantly higher, suggesting they may be trying to pay down their loans more quickly. For more insights into student loan debt, check out our full report on student loan debt in America.

Average monthly debt payments by age and generation

Across all types of debt, Gen X members make the highest average monthly payments: $599. On the other end of the spectrum, Gen Z members make the lowest average monthly debt payments: $198. This makes sense, given that Gen X members have the highest average total debt, while Gen Z members have the lowest.

Methodology

To determine averages across categories of debt — including auto lease, auto loan, credit card, mortgage, student loan and total debt —  we analyzed the accounts of more than 78.2 million U.S. Credit Karma members who had been active on the site within the last 36 months. All aggregate data analyzed was pulled on Feb. 7, 2023, and came from members’ TransUnion credit reports. Averages were based on information from the 90 days preceding the date the data was pulled. For the purposes of this analysis, auto lease, auto loan, credit card, mortgage and student loan debt is defined as any unpaid balances existing on members’ open accounts in aggregate at the time the data was pulled. All numbers in this report were rounded to the nearest whole.

New York City: Debt Scorecard

A Credit Karma Study

Updated November 4, 2022

Written by: Gaby Lapera

The 2020-2021 U.S. Census estimates place New York as the largest city by population in the United States, with a total population of 8.47 million. According to Credit Karma data from July 13, 2022, of 432,186 members who live in New York City, the average overall debt for a New Yorker sits at $69,265. In this case, overall debt is made up of auto loans, auto leases, student loans, mortgages, credit card balances and medical debt (Click here for the full methodology.)

Read on to see a snapshot of debt in New York over the last 90 days.

Credit Karma Stat Snapshot

Combined debt for Credit Karma members in New York City: $43.2 billion

Average debt for New Yorkers who are Credit Karma members: $69,265

Average VantageScore 3.0 for Credit Karma members in New York City: 695

Overall debt in New York City

The 432,186 Credit Karma members living in New York City held a combined total debt of $43.2 billion. The average overall debt for individuals was $69,265. The median overall debt was only $7,610 — implying that there are a minority of New Yorkers with very high debt compared to the rest of the population. The average next payment on that debt is $507.

In contrast, the national average debt for Credit Karma members is $49,197, and the median is $11,177.

New York’s debt dial

Image: copy-nycitydebtgauge

Auto loans, student loans, mortgage and credit card debt in New York City

The table below contains averages and medians for different types of debt among Credit Karma members in New York City.

So how do New Yorkers stack up against the national averages? The table below compares the national average against the averages in New York City among Credit Karma members.

Overall, Credit Karma members in New York City had more debt than the national average across all categories. In some categories, such as mortgage and student loan debt, the difference is much larger. This could be because New York City has a notoriously high cost of living.

How does New York City rank against other cities?

We compared averages for Credit Karma members living in the top 100 cities by population according to 2021 U.S. Census population estimates.

Out of the top 100 cities, New York has the 14^th highest overall average debt among Credit Karma members.

Here’s how New York City ranked against the other top 100 cities in America:

• Auto loan debt: 17^th highest
• Credit card debt: 10^th highest
• Student loan debt: 6^th highest
• Mortgage debt: 3^rd highest

Credit, inquiries and past-due accounts in New York City

Among Credit Karma members in New York City, the average VantageScore 3.0 credit score was 695 and the median was 719, both of which are considered prime. The national average VantageScore 3.0 for Credit Karma members was 674, while the median was 682.

New York members had an average of 3.1 inquiries on their credit reports, while the national average was 4.1.

New Yorkers average 0.58 accounts that were 30 days past due. The national average is 0.74 accounts.

Methodology

To determine averages across categories of debt — including auto lease, auto loan, credit card, mortgage, student loan and total debt —  we analyzed the accounts of about 432,000 Credit Karma members living in New York City who had been active on the site within the last 36 months. Averages were based on information from members’ TransUnion credit reports from the 90 days previous to the data pull, which was between July 13 and 15, 2022. For the purposes of this analysis, auto lease, auto loan, credit card, mortgage and student loan debt is defined as any unpaid balances existing on members’ open accounts in aggregate at the time the data was pulled. All numbers in this report were rounded to the nearest whole.

Note that all data for this article were pulled between July 13 and 15, 2022.

Please contact gaby.lapera@creditkarma.com with any inquiries about this article.

States With the Lowest Taxes in 2022

A Credit Karma Study

May 13, 2022

Written by:Gaby Lapera and Andrew Depietro

Lots of people wish they could pay less in taxes. Whether you’re thinking about making a move or you’re just curious, you can check out Credit Karma’s 2022 study on the states with the lowest taxes.

Credit Karma compiled a variety of publicly available datasets and created a weighted formula to determine which states overall had the lowest taxes. Factors included local sales tax, effective property tax rates and income taxes. (Click here for the full methodology.)

The five states with the overall lowest taxes are (No. 1 is lowest):

1. Alaska
2. Wyoming
3. New Hampshire
4. Nevada
5. South Dakota

And the five states with the overall highest taxes are (No. 1 is highest):

1. New Jersey
2. California
3. New York
4. Minnesota
5. Vermont

Read on for more details and context. Note: While the list for overall lowest and highest taxes are weighted, ranked lists, the individual factors themselves were not weighted within the variable. The other tax rankings are components that were considered in determining the overall tax rankings. Those lists were not calculated using a weighted formula. 

Credit Karma Stat Snapshot

Lowest overall taxes:

Alaska

Lowest effective property tax rate:

Hawaii

Highest effective property tax rate:

New Jersey

Highest personal income tax rate:

California

Overall ranking of states with the lowest taxes in 2022

In Credit Karma’s study, a lower score equals a lower overall tax rate. Check out the overall rankings of state taxes and some of the contributing factors below:

States in New England and California had some of the highest overall tax rates. The states with the lowest taxes were scattered across the country without any apparent common characteristics.

Alaska had the lowest taxes overall, mostly because of its nonexistent income and state sales tax. However, the state fell in the middle of the pack in terms of the average effective property tax rate (the average percentage of a property’s value that the owner pays annually in taxes). New Jersey had the dubious honor of having the highest taxes overall because of its high average effective property tax rate and higher personal income tax rates.

States with the lowest personal income tax rates in 2022

Eight states had no income tax at all in 2022:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

New Hampshire has a 5% tax on dividend and interest income, but not on labor income. Dividend and interest income can come from things like owning stock or having bank accounts that pay interest on deposits. It likely isn’t as common for people as income earned from a job (e.g., wages, tips, bonuses, etc.), but it’s still something to keep in mind.

The states with the highest personal income tax rates were:

All the states in the above table operate on a marginal basis, which means portions of your earnings are taxed at different rates. For example, pretend you live in the great state of Imagination and make $60,000. In Imagination, the tax table looks like this:

You pay 10% on the first $10,000 you make. Then 15% on any earnings you make between $10,001 and $50,000, and 20% on anything beyond that.

So how much do you actually pay in taxes (excluding one-times taxes or fees) in a marginal tax system? Here’s how you estimate it:

First, break out how much money you make in each category and then multiply the amount by the tax rate in decimal form. So in our above example, the taxes owed on a marginal basis would look like this:

(0.10 x $10,000) + (0.15 x $40,000) + (0.20 x $10,000) = $9,000

If your entire income were to be solely taxed at the highest rate, then someone making $60,000 in Imagination would owe $12,000 in taxes — $3,000 more than they would using the marginal system.

Because of the marginal tax rates, it’s important to know the tax brackets along with the income tax rates. Although California has the highest possible income tax rate, Oregon’s top tax rate kicks in at a much lower income level compared to California’s. That means a person could potentially end up paying less state income tax in California.

For example, single filers in California making between $61,214 and $312,686 cap out at an income tax rate of 9.3%. Meanwhile in Oregon, single filers making above $9,200 have an income tax rate of 9.9%.

One thing to note: Income can be taxed at both the federal and state level. Even if a state doesn’t have a personal income tax, an individual may still owe money on their income to the federal government.

States with the lowest sales tax in 2022

There are five states with no statewide sales tax. They are:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

Sales taxes can be levied on the state and local level. For this study, we only used state-level sales taxes from the Tax Policy Center.

The states with the highest statewide sales taxes were:

1. California – 7.25%
2. Indiana – 7%
3. Mississippi – 7%
4. Rhode Island – 7%
5. Tennessee – 7%

Interestingly, there’s a cluster of higher-sales-tax states in the center of the country, which runs contrary to the trend of coasts tending to be higher-cost areas.

States with the lowest average effective property tax rates in 2022

Property taxes are determined at a local level, not the state level, so different communities in a state can have different property tax costs. To get the bigger, statewide picture of each state’s property tax costs, we looked at its “average effective property tax rate” — which is based on the average cost of owner-occupied residential property taxes paid across all communities.

Credit Karma found this data in the U.S. Census Bureau’s 2020 American Community Survey.  

Note that there’s a tie for third and fifth place for states with the lowest average effective property tax rates.

Hawaii is the real surprise on this list because it typically ranks as a pretty expensive state, especially in terms of the cost of property. In our study on the cheapest states to live in, Hawaii came in as the most expensive state for average Zillow home value, average rent and cost of living.

The state with the highest average effective property rate is New Jersey at 2.47%, followed by Illinois at 2.24% and Connecticut at 2.13%.

The map that follows shows the average effective property tax rate for each state, along with its rank. There’s a little cluster of higher average effective property tax rates in New England. Texas and Nebraska also make the list of top 10 most expensive states in terms of average property tax rates.

Methodology

To determine which states have the lowest taxes, this study analyzed all 50 U.S. states using the follow criteria:

1. 2022 top state income tax rate, single filer — from the Tax Policy Center
2. 2022 top state income tax rate, married filing jointly — from the Tax Policy Center
3. 2022 state sales tax rate — from the Tax Policy Center
4. Average effective property tax rate, based on how much owner-occupiers actually paid as a percentage of the value of their property, from the U.S. Census Bureau’s 2020 American Community Survey. This was done because property taxes are not charged on the state-level — they are charged by localities like towns, counties, municipalities, etc., and all have their own rates — and so was calculated as the effective rate homeowners paid.

All states were given a score for these categories and then ranked by tax type (such as, states with the lowest property taxes or with the lowest income taxes) and by overall ranking.

Sources

• U.S. Census Bureau’s 2020 American Community Survey 5-year estimates
• Tax Policy Center’s State Sales Tax Rates, 2022
• Tax Policy Center’s State Individual Income Tax Rates, 2022

Podcast originally posted in June 2021. Transcript published on April 29, 2022.

Gaby: Hello. Welcome to the inaugural episode of “The Buck Starts Here,” a podcast about personal finance for everyone. My name is Gaby Lapera. I am a kind of jack of all trades at Credit Karma — a content strategist, which doesn’t really mean much to most people. But joining me here on the phone is Evelyn Pimplaskar, our fabulous money editor.

Hello, Evelyn, how are you?

Evelyn: I am good. How are you this morning?

Gaby: I am really good. And I’m really excited to have you here because we’re going to talk about credit scores. And you might be sitting out there in listener-land, being like: “Why are these ladies going to talk to us about credit scores?” And the answer is because, you know, we work for Credit Karma, and we know a lot about credit scores and we want to help you know a lot about credit scores too.

But before we do that, I have to read you some legal stuff. So please buckle up, listen to this beautiful disclaimer. The views expressed here are those of Credit Karma’s Editorial team who are associated persons of Credit Karma Inc. They do not represent the views of Credit Karma Inc. or any of its subsidiaries or affiliates.

Any information provided by podcast guests does not reflect the views of Credit Karma Inc., its Editorial team or any of its subsidiaries or affiliates. This podcast is for educational purposes only and is not intended to be used as financial, credit or legal advice. It does not constitute an offer for any product.

You should not make any decisions based solely on what you hear on the show. Each person’s situation is different, and you should do your own research. Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our opinions on the show. Credit Karma’s marketing partners do not review, approve or endorse our content.

Financial products can change over time. So listeners should check terms and conditions for current information. The information on the show is accurate to the best of our knowledge when it’s recorded.

OK, we’re done. Just kidding. That’s not the whole podcast. Now we’re actually going to talk about credit scores.

Evelyn, I would like to ask you, “What is a credit score?”

Evelyn: To understand what a credit score is, I think we first need to look at what a credit report is. So a credit report is basically a history of how you have used credit in the past. It contains a lot of information from different companies that have reported about their action — their interactions with you.

If you have, you know, an auto loan in the past where you used a credit card, those companies can choose to report that information to the credit bureau and the credit bureau consolidates that information into your credit report. And a credit score is basically an analysis of that information on your credit report.

It is a number that is generated using some complex algorithms that the credit bureau applies to generate that number. So a credit score is basically a snapshot of your credit history at a certain point in time.

Gaby: Yes, that totally makes sense. I think that there are some things that we should, in the words of Wikipedia, “disambiguate,” which is one, that there are multiple credit bureaus.

So I think everyone has heard of — well, maybe not. You know what? Let’s not assume anything. The three biggest credit bureaus that American consumers may have interacted with are Experion, Equifax and TransUnion. Those are the big three, but there are literally dozens of other credit-reporting agencies, which is what they’re called in official fancy talk.

And if you want a whole list of all of the ones that exist, you can actually go to the CFPB, which is the Consumer Financial Protection Bureau — one of my faves. And they have a list of all active CRAs in the country operating right now.

So first of all, you have three different bureaus. That means you have a minimum of three different credit reports. And then to complicate things, you can have different credit-scoring models. So, for example, if you’ve heard someone say, “What’s my FICO® score?” that is one type of credit-scoring model.

Another type is VantageScore. And when we say credit-scoring model, that is essentially just the algorithm that Evelyn mentioned earlier that helps people figure it out — well, helps the credit bureaus figure out what your credit score should be.

To further complicate it, there are versions of all the models. So there’s like VantageScore 1.0, or like, I think FICO® Score 8 or something like that. Don’t hold me to that. They change over time and different lenders could be using different models. And then, there are also different types of scores — depending on what you’re trying to do. Evelyn, would you like to weigh in?

Evelyn: Right. And the three national credit bureaus, those scores are generally FICO or, or VantageScores that you will get from those large bureaus, the national credit bureaus. So the specialized bureaus, a lot of them will have their own algorithm to generate their own scores and those different, not national, specialized credit-scoring companies.

I guess I shouldn’t call them bureaus. They’re credit-scoring companies. They basically will be generating a score for a specific purpose. For example, if you are applying to rent an apartment, that landlord may go to a credit-scoring company that specializes in aggregating that kind of information and generating a credit score that will speak to your reliability as a renter.

So different credit-scoring companies will generate a score based on what they specialize in. But the ones that most people are familiar with and that you will be seeing if you access your credit score, it’s likely either a version of FICO or a version of your VantageScore.

Gaby: Yes, that is absolutely correct. So the main takeaway from this part of the episode is: You have so many credit scores, but the ones that you’ll most likely care about are your FICO or VantageScore.

We spent a lot of time talking about this thing, but we haven’t really given anyone a “so what?” So what, why should we care about our credit scores?

Evelyn: Ah, well, credit scores are very important for a number of reasons. And let me just say that credit scores are actually important, and your credit history is actually important — whether you currently use credit, if you are planning on applying for credit, it’s important. So your credit scores and your credit history are factors in whether or not you can get approved for new credit.

And I think that’s probably a function that most people know that, “Hey, I want to go apply for an auto loan [and] need to check my credit score because that’s going to matter.”

Credit scores can also factor into other financial aspects of your life. In addition to whether or not you get approved for credit, your credit score and your credit history can affect the interest rate that the lender offers you. And that’s very important because a good credit score can make you eligible for some of the best rates.

Gaby: Yes. And that means saving so much money over time. Imagine you have a 30-year mortgage. And even if the difference is only like a couple of percentage points, that’s literally thousands of dollars that you’re saving because your credit score is better, which that feels raw, I’ve got to say.

Evelyn: And you know, a lot of people will look at — when they’re applying for new credit, they’ll look at the monthly payment and say to themselves, “Is this something that I can afford on a monthly basis?” And that is a very important question to ask yourself, obviously. But you need to go beyond that and look at the total cost of the money that you’re borrowing over the life of the loan or the term of the credit.

And the interest rate directly affects how much that loan is going to cost you. If it’s five years, 10 years, you know, 20-year mortgage, 30-year mortgage, the interest rate really will affect how much that loan costs you, and your credit score affects that interest rate.

Gaby: Yes. Another thing that credit scores could affect are security deposits — like whether or not you have to pay one, or if you do have to pay one, how much for things like utilities or mobile phones. Again, we’re not saying that that’s true in everyone’s case and every single case ever, but that’s something that could totally happen.

Evelyn: I’ll give you an example. I just switched my phone carrier and yes, they checked my credit. But before they checked my credit, they mentioned that there might be a deposit required. After they checked my credit, no deposit required. So that’s just an example of how, you know, your credit score and your credit history can affect some very everyday things.

Gaby: Yes. And I actually think that now’s kind of a good time to pause and explain why credit scores exist in the first place, because we’ve really only explained it from the consumer’s perspective, which frankly I think is the most important perspective. But I think in order for consumers to understand what’s really going on, they have to know why companies care so much.

And what it boils down to is that credit scores are a shorthand way for companies to decide whether or not you’re financially trustworthy, whether or not you’re going to pay them back if they extend you credit of some kind. And the reason that they kind of exist at all is because back in the day, credit decisions were made by your local banker.

And you knew that guy. It’s like Jimmy Stewart in “It’s a Wonderful Life.” Like everyone knows everyone in that town. The banker can decide, “Yeah, Frank doesn’t make a ton of cash, but he’s trustworthy. And even if it takes him a long time, I know he’ll pay me back.”

As society got more spread out, people had a harder time making those decisions, especially when things got more national. There’s a whole history of banking here that I wish we could get into — because I’m really cool — but we’re not going to do that.

So this is essentially just a way for companies to figure out whether or not to lend to you, and that can feel terrible. I 100% acknowledge that it can feel really bad when you end up checking your score and it’s lower. I guess I should say, the higher your credit score, generally, the better. It’s not like golf.

Evelyn: Absolutely. But let’s look at the flip side of that too — the fact that there’s a credit score that is factoring into your lender’s decision. It actually can be a good thing for consumers because your credit score is something that you do have some control over. You can take steps to make that credit score as good as it can possibly be.

So, you know, it can be overwhelming to realize that, “Wow, here’s something that is so important to my ability to borrow money.” But at the same time, you have the power to affect that. You have to take control of it. Hopefully, this conversation we’re having can help people understand better how to do that.

Gaby: Yes, that is my main hope for this show as well. I think that is a perfect segue into the next portion of our show, which is, I think that in order to understand how to improve your credit scores — plural, because you have many — I think it’s important to understand generally: What kind of factors are credit bureaus looking at when they’re putting together these models that come up with the credit scores?

I will say that credit bureaus’ algorithms are kind of a black box — they’re like protected industry secrets. So we can’t tell you exactly how important any of these things are or anything. But the credit bureaus have said that these are things that they consider when they’re putting together their credit scores.

So what goes into a consumer credit score? So for FICO or VantageScore, these are the things we’re talking about.

Evelyn: So speaking very generally, everybody’s credit situation is different. Every credit-scoring company can have its own model. It can have its own factors and how much it weights each factor can vary. But generally speaking, the things that go into a credit score include payment history, credit utilization ratio, the average account age of all of your accounts, the mix of credit that you’ve used, the types of credit that you’ve used, and the amounts of credit on each of those accounts, and the number of inquiries and the type of inquiries that your account is showing.

So let’s go into those and break each one down a little bit. By far the most important one — consistently credit bureaus tell us this — is payment history. How reliable have you been in the past at paying off your past credit, according to the terms of the agreement? In other words, if you took out a loan for two years and you had to pay $500 a month on that loan, did you do that?

Did you pay $500 a month every month until the loan was paid off? That is by far the most important factor — your reliability in repaying the loan.

Gaby: Right. Which makes sense from their perspective, right? Because it shows a pattern of behavior.

Evelyn: Exactly.

Gaby: Yes. And so the next one is credit utilization ratio or credit use ratio, if you want to be less stuffy. And that’s basically, if you take all of your open accounts — so all of your credit cards — and then you divide how much you’re actually using over that total amount — that is your credit use ratio.

So imagine in our very simple scenario that you have exactly one credit card and you have a $1,000 credit limit. If you were to spend $300 on that credit card, you would have a 30% credit use ratio. Rule of thumb — this is from the CFPB — is that you want to try to keep your credit use ratio below 30%. Sometimes I hear this misstated as you want to keep it at 30%, and that is definitely not true. The lower your credit use ratio, the better. Because if you’re constantly getting very close to your limit — so almost a 100% credit use ratio — it shows the companies that you’re maybe struggling with cash flow.

Evelyn: Right. Exactly.

Gaby: And that feels super unfair sometimes, especially if — back to our original example — imagine you have one credit card but your credit limit is $300 — or even lower. Say it’s $100 — because that makes the math even easier — and you spend $30. That’s 30% of your credit limit. That would have been groceries for me in grad school for one person when I was only eating rice and beans, essentially. So it can feel like a super tricky thing to manage, for sure.

So what I would do in my situation — and you should figure out if this works for you — is sometimes when you’re trying to build credit, and you’re trying to show that you have that payment history because you’re kind of in a Catch-22, you have to show that you’re paying off your credit cards regularly in order to build payment history, but you don’t want to get too close to your credit limit. Try and pick a bill that’s super, super low to put on your credit card and just have it on auto pay and then don’t use it for anything else.

So, for example, if you have, say, Spotify Premium — that’s 10 bucks a month. Even if you only have on a $100 credit limit, $10 a month is 10% — only use that credit card for that [and] nothing else. Show that you pay it off every month. That’s one way to build credit.

Evelyn: Well, you know, there are multiple ways to improve that ratio. And we’re not recommending any one over another because every person’s situation is unique.

They need to determine this for themselves. But there are a couple of things you can do. One is the suggestion that you just made. Another one would be to apply for another credit card that will increase the amount of your available credit. And then as long as you keep your usage ratio under that 30%, that will help improve your credit utilization ratio.

That’s one way that you can do it. Another way is to pay down any debt that you have on your existing credit cards. That can help improve your utilization ratio.

Gaby: Oh, yes! This is actually a really great point, Evelyn. This gets to another myth that I’ve heard about credit utilization. Just a credit score myth in general, which is that people say that it’s good to carry a balance from month to month, that it helps you build your credit. Carrying a balance month to month has nothing to do with whether or not you’re going to help build your credit.

That’s a myth invented by, I don’t know who. But the point is that when you carry a balance from month to month, you’re more likely to end up having a higher credit card utilization ratio. And so … you know … that’s not helping you at all. And we haven’t gotten through all the credit score factors yet, but carrying a balance is not one of them.

Evelyn: Right. Carrying a balance is not a factor in a positive credit score.

Gaby: No. The only person that that benefits is your bank, who gets more interest payments out of you. That’s it. That’s the only person that helps.

Evelyn: Right. Or the credit card issuer.

Gaby: Right. Or credit card issuer in case it’s not a bank.

Evelyn: So we’re talking about ways to reduce that ratio. So paying down a balance is definitely one way to improve that ratio. And then another thing is, if your financial situation is positive that you can do this, you can contact the credit card issuer and ask them to increase your credit limit. And that will also improve your ratio. If you go down that path, just make sure that this is a financial decision that makes sense for you.

If you’re going to increase your credit limit and you’re somebody that has a tough time keeping within that limit and not running up the cards, then that may not be the best option for you. But it is one option that you can consider.

Gaby: Yes. I actually wanted to circle back around to one of the options you mentioned, which is apply for another card. If you get it, great, you will have a higher credit card utilization ratio. If you don’t, that is a bummer. But it could also be a bummer for another reason, which is another one of the factors in credit scores, which is inquiries.

Evelyn: Right. So there are two basic types of inquiries on your credit report. There’s what we call a soft inquiry, which is, if you look at your own score, that can be — or your own report — that could be considered a soft inquiry. And it doesn’t affect your credit score.

A hard inquiry occurs when you have actually asked for credit and the potential lender looks at your credit history and asks for your credit score to really evaluate your request for credit. So hard inquiries do affect your credit score. How much they affect it depends on a lot of different things. But again, that soft inquiry doesn’t really affect it. Hard inquiries can.

Gaby: And when we say affect it, we mean it makes it go down. Hard inquiries can make your credit scores go down. And there’s exceptions to this. If you are, for example, shopping for a really big purchase, like a home or an auto loan, there’s a grace period where you can do comparison shopping so you can ask different lenders, “What kind of loan do I qualify for? What kind of interest rates would I get?” And all of those checks are considered one.

The amount of that period, the length of that period rather, depends. But the reason that credit companies care about how many inquiries you have — especially if you have a ton of inquiries in a short period — is because if someone is applying for a lot of credit cards all at once, it could indicate to the credit card company that maybe this person is having some kind of cash-flow issue and they’re just trying to get a lot of cash fast.

And that person for them could be riskier because if they’re having a cash-flow issue, maybe they’re not going to be able to pay them back. That’s why credit companies in general care about inquiries. I think a lot of us would be like, “Why would they even care if I asked anyone else for a credit card?”

You know, that’s why. Probably.

Evelyn: It’s not necessarily that is your situation, but that is the impression that lenders might take away from that scenario.

Gaby: Yes. But I think the other thing that I really want to emphasize is that if you check your own score, that is always a soft inquiry.

Evelyn: Right.

Gaby: You checking your own stuff — that is never going to affect your credit score and you’re protected by the law. You should feel free to check that bad boy as much as you want, because that can only lead to more knowledge. And knowledge is power.

Evelyn: Exactly.

Gaby: Circling back around, average account age is another credit score factor. We still have two more.

Evelyn: Yeah, we have two more, and we kind of skipped over the two middle ones to talk about inquiries, which tend to have the least effect on your credit score. So the other two that we need to talk about are the average age of your accounts and the credit base. So average account age is basically just, how long have you been using credit?

Have you been using it 10 years? Have you been using it 20 years? Have you been using it 30 years? And that is important because it helps the lender understand how you have managed credit over time. And how long you have actually been using credit kind of speaks to your experience with credit.

Gaby: Right.

Evelyn: Someone who has not been using credit for as long, and [who] may be using it really well — and managing it very responsibly. And the longer that you do that, the better it can be.

Gaby: Yes, yes. And this one is one of those ones where there’s like not really a shortcut to it, unfortunately. Like all you can do is continue to have credit over time.

If you are a parent and you want to help out your kid, you could help them build credit earlier by doing things like adding them as an authorized user to your cards. Or, one thing that my parents did is they added me as a co-owner on a car loan when I was 16. And all of those things really helped build my credit up quite a bit.

So that’s definitely something that you can consider. The reason that you hear hesitation in my voice is because you shouldn’t do that if you aren’t going to be able to meet those financial obligations, right? Because that could also hurt your child’s credit scores.

In fact, there’s like a whole terrible portion of the internet where people go because they found out that their parents have stolen their identities and have opened all of these credit cards in their names. And they hit 18 and they realize that their credit score is like 400 and there’s nothing they can do about it without putting their parents in jail. And it’s really, really terrible. And it makes me super sad, but hopefully you’re listening to this because you want to help your children.

Wow. I really derailed. I’m so sorry. Evelyn, anything else to say about average account age?

Actually, I do have one more thing to say. One thing that you might be tempted to do is — after you have had accounts for a while, and you have multiple credit cards. Maybe your first credit card wasn’t that great — maybe it just has a super high interest rate or you don’t get points or whatever it is, you might be attempted to close down that account. Do not do that if you can help it at all, because it will drive down the average age of your accounts.

When you close your oldest account, it means that it no longer — it takes a while, but it eventually will no longer contribute to your credit history. And so your average account age goes down; it becomes younger. So if you have like a really old credit card that you never used, I’m going to recommend the same trick that I did before, which is just put a random, tiny bill on it on autopay — just to keep it open. Because the other thing is that sometimes credit card companies will close down credit cards if they haven’t had activity in too long. Just keep it open, you know, just running in the background.

Evelyn: Yeah. That’s a very good point to make.

Gaby: Thank you.

Evelyn: You know, closing down your oldest account is not necessarily something that’s going to help you and could potentially hurt you quite a bit.

Gaby: Yes.

Evelyn: The last factor to talk about is the credit mix and the amounts. Lenders generally like to see that you can manage multiple types of credit. So, ideally you would want to have maybe a credit card, maybe an auto loan, maybe a personal loan just to show that you have experience at managing — and managing well — credit in all of its different permutations.

Gaby: Yes.

Evelyn: And that is something that’s kind of a hard one to control for some people. Because if you are at a point in your life where you don’t have an auto loan, or you don’t have student loans or you don’t have a personal loan — if the only credit that you use is a credit card — then that can be difficult to achieve that mix.

But for most people that mix is going to include a credit card and auto loan, a mortgage if you’re a homeowner. And again, it’s just a mix of all the different types of credit that you could be using.

Gaby: And just to be clear: You shouldn’t go out and get a personal loan just to increase your credit mix.

Evelyn: Oh, no.

Gaby: That’s probably not a great idea. I mean, I don’t know. You know what? You do you. Again, remember the disclaimer at the top of the show? It’s your life. You should decide what’s best for you. But it’s not something I personally would do. What about you, Evelyn?

Evelyn: I would not do it either. But that said, for most people, just living your financial life [means] you’re going to get a mix of credit types. And most people will have an auto loan. It’s very common for people to have credit cards. Student loans are very common. Mortgages are very common. So that credit mix is probably something that’s going to evolve naturally as you just go through your financial life making responsible decisions.

Gaby: Yes, definitely. One thing I wanted to hit on is that if you’re checking your score regularly and you see like random fluctuations but you haven’t actually changed anything, that could be because sometimes the credit bureaus changed their scoring models. Remember we talked about the models earlier?

Evelyn: Right.

Gaby: So that’s also something to watch out for. If you’re looking at something and it just totally doesn’t make sense, that could be one thing to look out for. Or if it suddenly gets hit really hard and your score drops really precipitously. That might be a good sign. Sorry, that might be a bad sign that something hinky is going on with your credit. It could be a sign of credit fraud or something like that, which is why I think personally that you should probably check your credit reports and credit scores pretty frequently.

If you see something on your credit report, like if you see a utility bill that’s not you, that’s something that you can dispute with the credit bureau and get taken off, and that will help your credit score recover. I think it’s important to check your credit scores and reports very regularly so that you can monitor for things like that.

But if you see minor, random fluctuations, I don’t know. I check my credit scores all the time because I work at Credit Karma. It goes up and down — and it’s sometimes by as much as 20 points. So sometimes it happens.

Evelyn: I agree with you. I actually think it’s a very good idea to keep an eye on your credit report and your credit score for a number of reasons, including what you just said. You can recognize fluctuations. You can monitor for fraud — because often if identity theft is going to occur, you’re going to see signs of it in your credit history.

Those things could be like an account that’s newly opened that you don’t recognize, or a bill that’s been reported as late that you don’t recognize. So that’s another reason to monitor.

And even if you’re not worried about fraud and you’re not planning on borrowing any money anytime soon, I still think keeping an eye on your credit report and your credit score makes sense because as we said earlier, knowledge is power. And the more you know about your overall financial picture, the more empowered you can be to make decisions for what you need to do next, what you want to do next.

Also, interacting with this information on a regular basis can increase your comfort with it and help you feel more in control of it. And those are very important things. Not being intimidated by the information, feeling that you’re on top of it and really understanding how decisions that you make, you can control what happens to you financially and really set the groundwork to reach your goals.

So I don’t think there’s a downside to checking your credit and really staying on top of it.

Gaby: No. Y’all, we want you to feel empowered. That’s all we want for you. Here’s some practical advice on how to check your credit scores. There are a lot of ways to check. This is a podcast that is by Credit Karma, so you can, in fact, check your VantageScore 3.0® credit scores on Credit Karma. I think it’s just TransUnion and Equifax. And then there are some other companies too, like Nerdwallet, Credit Sesame. You can check on there. I don’t know what they have. Lots of credit card companies are offering specifically FICO scores these days.

I know that I can check my FICO score through my credit card companies. And then there’s also annualcreditreport.com. And this is specifically for your credit reports, not your credit scores. Remember the difference. The thing about this website is that the last time I looked at it, it legitimately felt like a scam to me because it’s very bare bones.

And I was like, this can’t be real, but it is. It’s from the federal government. It’s safe. Just make sure it’s annualcreditreport.com. Don’t go anywhere else. There are some sites that have similar URLs that are scams. Just be careful. There are a lot of different ways to check what is going on with your credit scores and credit reports.

I think the one thing that I want to cover that we haven’t hit yet is we’ve told people how to check their scores. We’ve told people what goes into their scores. What should they do if they log in and they look at their score for the first time — which by the way, congratulations, if this is the first time looking at your scores — and they see that it’s not great?

Let’s try to give people some strategies that they can use to help build themselves up.

Evelyn: Well, fortunately there definitely are things you can do. You are not completely out of control of your credit report and your credit score. There are options.

If you are looking to build your credit, you could — if you are related to someone who has established credit, for example, you are a student or a young professional and your parents have established credit and good credit — you can be an authorized user on a credit card that your parents have. And then the good use of that credit card will be positive for your credit report as well and your credit history as well. So that’s one option.

You can do secured cards, which I’m not as familiar with secured cards. Maybe, Gaby, speak to those.

Gaby: I am, in fact, very familiar with secured cards because before I was a content strategist, I was a credit card editor. Secured cards are a type of card that require a security deposit. That’s why they’re called secured cards. And a lot of times your security deposit is equal to your line of credit. So if you give the credit card company $200, your credit limit is $200.

Not all secured cards work like that, but that’s generally how they work. And the reason that you might think about getting a secured card is that they’re typically a lot easier to qualify for, because what happens is, is that secured card basically guarantees that the credit card company is going to get paid.

So they’re much more willing to extend you the credit. So you give the credit card company your $200, and then you spend money on that credit card [and] pay it off every month. Depending on the card, sometimes you can graduate to an unsecured card and the credit card company will give you back your $200 and just let you spend on credit without having any kind of security deposit at all, as long as you continue to keep paying stuff back.

So the thing with secured credit cards though is that it’s not just about having one. It’s also about using it and trying to make sure that you match up to the parameters of credit scores. So pay that guy on time every time, every single month. Try and stay below that credit utilization ratio. That’s another pothole to potentially watch out for. But remember you don’t want to not use it at all and then have it get closed. But secured cards essentially could be a very good tool to help you build your credit.

Another thing is student loans. Evelyn, you have two children who will soon be going to college. Do you want to talk about student loans?

Evelyn: I do. I am hoping to send them without student loans. We’re saving in 529s, and that’s definitely another podcast that we should do.

Gaby: Yes.

Evelyn: A student loan is something that a lot of people are probably either already doing, or they’re going to be taking out a student loan and paying it off. So if you have a student loan that is in your name, not your parents’ name and you start paying on that student loan — pay it on time, pay it responsibly as agreed — that’s going to help establish your credit history.

Often, student loans are something that people are going to be paying on for a while. But it’s a great way to improve your credit and really establish your credit history by doing something that you have to do anyway. You have to repay that student loan.

The same is true of an auto loan. If you are going to be taking out a loan to buy a car, if you’re able to get that auto loan and qualify for it on your own, that’s great.

If you can’t, one option is to have somebody co-sign the loan for you. And again, a word of caution there. If you go that route, just be aware that your payment activity on that auto loan is going to affect your credit and the co-signer’s credit. So, for example, if it’s your parent that co-signs it for you and you’re paying the loan, that’s going to improve your credit history. But it’s also going to affect theirs. But it can be a very good tool to qualify for that credit —co-signing to qualify for that credit. And then use that to establish a really good payment history, which can help improve your credit score.

Gaby: And the cool thing about having a co-signer, if they already have good credit themselves, it could mean that you end up with a lower interest rate on the loan.

Evelyn: Yes, that is definitely another benefit. It can help you qualify for the loan and may help you secure a better interest rate on that loan.

Gaby: Yes. I think that’s about it, that’s all I wanted to talk about. So I think the main takeaways of this show are that you have a lot of different credit scores, the way that the credit scores are formulated — we generally know some of the factors that go into deciding what your credit scores are. And I think another really big takeaway is that you have the ability to affect your credit scores. Again, this is the whole theme of the episode is we want you to feel super empowered and go out into the world — because knowledge is power.

And now you have so much more knowledge. Evelyn, is there anything you’d like to say?

Evelyn: Yeah, I think that summarizes it really well. Knowledge is power. And the more you know about how credit works, the more able you are to make it work for you.

Gaby: Definitely. All right. Well, thank you for joining us for this episode of “The Buck Starts Here.”

Evelyn: This was a blast. I want to do it again.

Gaby: Of course. All right, listeners. Get on out there and do something good. Bye.

Oh, hey there. Bet you thought it was over. It’s not. Welcome to the outro. In the outro, I tell you things that other people-fact checked in the episode and think that I ought to tell you, just in case.

It’s not anything necessarily wrong, just things that you probably ought to know before you go about your day.

No. 1: Applying for a new credit card can help you improve your credit ratio, but it can also cause your credit scores to dip as a result of the hard inquiry when applying.

Also, please note that requesting an increase in credit limit may result in a hard inquiry regardless of whether or not you actually get that credit limit increase — again potentially dropping your credit scores without any tangible benefit.

I suppose one other thing that you should remember when listening to any podcast about financial advice, but especially this one, according to our lawyers, is that anything that you hear should not be constituted as financial advice that we are telling you to go do directly. You should do your research before you do anything. This podcast doesn’t necessarily count as that.

I know I said that in the disclaimer, but we just really want to drive home the point that, you know,  be careful. We love y’all. Good luck. Enjoy personal financing. And have a great day.

States With the Cheapest Childcare Costs

A Credit Karma Study

April 29, 2022

Written by:Gaby Lapera and Andrew Depietro

If you have kids or you’re thinking about having a baby, you probably already know that it can be an expensive proposition, especially when it comes to childcare.

Credit Karma looked at two key data sets — covering factors such as median family income and the cost of childcare for various age groups, sourced from the Economic Policy Institute and U.S. Census Bureau’s 2019 American Community Survey 5-year estimates — to create a weighted formula for determining the states with the highest and lowest childcare costs. (Click here for the full methodology.)

The states with the cheapest childcare costs are (No. 1 is cheapest):

1. Mississippi
2. Alabama
3. South Dakota
4. South Carolina
5. Arkansas

The states with the most expensive childcare costs are (No. 1 is highest):

1. Massachusetts
2. New York
3. California
4. Minnesota
5. Colorado

Read on to see the cheapest and most expensive states for different kinds of childcare in our study.

Credit Karma Stat Snapshot

Lowest overall childcare costs:

Mississippi

Highest overall childcare costs:

Massachusetts

Average annual cost for infant care:

$11,420

Average annual cost for 4-year-old childcare:

$19,112

Overall ranking of states with the cheapest childcare in 2022

In Credit Karma’s study, a lower score means that childcare costs were cheaper. The table below shows the overall rankings of the average annual childcare costs, per Economic Policy Institute’s report on childcare costs in America, and the U.S. Census Bureau’s median family income data to calculate the share of income that childcare consumes. The rankings were then created by scoring each state’s average infant care cost, 4-year-old childcare cost, and the percentage these costs take up of each state’s median family income, based on the Census Bureau’s 2019 American Community Survey.

Generally, the south and middle of the country enjoyed less expensive care, while the northeast and west had more expensive childcare costs. The No. 1 cheapest state is Mississippi, while the No. 1 most expensive state is Massachusetts.

The cheaper states for childcare weren’t surprising for the most part (many are among the cheaper states to live in generally, according to another recent Credit Karma survey). But there were two outliers: Indiana and Nebraska, which ranked among the 12 most expensive states for childcare — but ranked among the 20 least expensive states in our study of the cheapest states to live in.

Here is a table showing the overall average costs for childcare in the United States. In this table, the cost of childcare as a percentage of the median family income was calculated using the U.S. median family income of $77,263, based on the Census Bureau’s 2019 American Community Survey.

The details: States with the cheapest childcare costs in 2022

Credit Karma turned to a childcare study created by the Economic Policy Institute to find the average cost of different types of childcare in every state.

According to that study, the U.S. Department of Health and Human Services considers childcare affordable if it costs no more than 7% of a family’s income. Using this criteria, not one state in the nation has affordable childcare costs, based on average annual costs and median family incomes.

The five states with the cheapest infant care are:

The five states with the cheapest childcare for a 4-year-old are:

The five states with the cheapest infant care based on its cost as a percentage of median family income are:

The five states with the cheapest childcare for 4-year-olds as a percentage of median family income are:

These states tend to have a lower cost of living, according to our survey on cheapest states, and that’s certainly reflected in their childcare costs. The one state that might be considered an outlier is North Dakota, which has the fifth lowest infant care costs as a percentage of median family income, yet is the 24th most expensive state.

Note that the overall rank isn’t based solely on the total average annual cost. Instead, it also takes into account median family income and the cost of care as a percentage of median family income.

Tips for managing your childcare costs

There’s no easy way around it. Childcare can be a huge expense. But you may have some options for lowering costs.

Banding together with neighbors or friends to hire a nanny could help reduce the price of your childcare. If two or three families split the cost, it could be manageable to have in-home care.

During the coronavirus pandemic, some families formed childcare or learning pods to help manage online learning and childcare while parents worked. Parents can take shifts watching the kids depending on their work schedules — and parents who don’t work can often be particularly flexible contributors in this kind of arrangement.

A more traditional option might be family. If you have the luxury of having family nearby that you trust, you could consider working something out with them to watch your kids. Those familial bonds might be enough incentive for a family member to care for your children for little or no pay — although in some cases that could put some strain on your relationships.

One last idea: Many states offer free or reduced-cost childcare for families below certain income limits. Check out your state’s resources for help paying for childcare.

Methodology

To identify the most and least expensive states for childcare, each state was analyzed using the following criteria:

1. Average annual cost of infant childcare, sourced from Economic Policy Institute
2. Average annual cost of 4-year-old childcare, sourced from Economic Policy Institute
3. Median family income sourced from the Census Bureau’s 2019 American Community Survey, 5-Year Estimates

Each state received a score for these factors, which were then added up, and all states were ranked.

Sources

• U.S. Census Bureau’s 2019 American Community Survey 5-year estimates
• Economic Policy Institute

Best States to Live in for Your Finances in 2022

A Credit Karma Study

March 30, 2022

Written by:Gaby Lapera and Andrew Depietro

Credit Karma studied metrics on taxes, state pension funding rates, property values, income and cost of living to compile a list of the best and worst states to live in for your finances. (Click here for the full methodology.)

Cheaper states were clustered in the middle of the country and in the south, while more expensive states tended to be coastal.

The five best states for your personal finances in 2022 are (No. 1 being best):

1. Tennessee
2. Utah
3. Idaho
4. Arkansas
5. South Dakota

And the bottom five states for taxes (No. 1 being worst):

1. New Jersey
2. Hawaii
3. Connecticut
4. Alaska
5. Illinois

Read on for a deeper dive into some of the factors that figured into our rankings, and how states stack up on individual metrics.

Credit Karma Stat Snapshot

Best state for your finances:

Tennessee

Worst state for your finances:

New Jersey

State with the highest median income:

Maryland

State with lowest cost of living:

Mississippi

Overall ranking of best states for your finances

In our scoring system for this study, a lower score means the state is better when it comes to finances. This table shows the overall ranking, along with a few other key financial indicators for each state:

Note: Two states — Arkansas and Kentucky — tied for fourth for grocery cost of living:

Coastal states came in hot as some of the worst states for personal finances. Although residents in those states have higher median incomes, the states often have higher taxes and greater costs for things like groceries, transportation, utilities and medical care.

Hawaii and Alaska regularly show up as more expensive states in Credit Karma’s studies, like this report on the cheapest states. This may be because both are geographically isolated, meaning goods must travel farther at greater cost.

The Midwest, Plains, Rockies and South tend to be cheaper, with the exception of Illinois. Illinois appears as one of the worst states for finances — mostly because of its high effective property tax rate and the poor financial condition of its publicly funded pensions.

Take a look at the map below to see what regions could be better for your finances:

States with the lowest cost-of-living indexes

In terms of overall cost of living, these were the states with the lowest and highest costs:

Credit Karma used the following cost-of-living indexes in the final calculation for the best states for your finances:

• Groceries
• Transportation
• Utilities
• Health

Here are the states with the lowest cost of living in the individual indexes:

Note: For the transportation cost of living, Virginia and South Dakota tied for fourth place.

Here are the states with the highest cost of living in the individual indexes:

Arkansas’ consistently good scores in cost-of-living indexes might explain why it ended up as one of the overall best states for personal finances. Tennessee also makes multiple appearances, which contributes to its overall standing.

Hawaii and Alaska have a similar, if opposite, dynamic. Both appear in multiple categories as expensive states, leading both to be among the worst states for personal finances.

States with the lowest average effective property tax rates

The U.S. Census Bureau’s 2019 American Community Survey and the Annual Survey of State and Local Government Finances in 2019 provided the average effective property tax rates for different states. A state’s average effective property tax rate is an estimate of the percentage, on average, of a property’s value that’s paid annually in taxes.

Using the government data, we were able to find the average effective property tax rate based on what people in owner-occupied units pay on the state level.

Hawaii is the dark horse on this list. Hawaii has some of the most expensive property in the U.S., but it has a low effective property tax rate.

New Jersey has the highest average effective property tax at 2.44%, followed by New Hampshire at 2.12%. Illinois and Connecticut share third place at 2.11%.

Keep in mind that low property tax rates may not translate into a small tax bill because of property value. For example, homes in Hawaii are notoriously expensive. Hawaii’s median sales price for a home was $690,000 in September of 2021 according to RedFin. With a property tax rate of 0.28%, a homeowner with a home valued at a median home sales price in Hawaii could expect to pay $1,932 in taxes.

Alabama has the next lowest average effective property tax at 0.37%, and its median home sales price in September of 2021 was $256,000. A homeowner whose home is valued at Alabama’s median home value would owe only about $947 in taxes, despite facing a higher effective tax rate.

New Jersey gets hammered twice because it has both a high effective property tax rate and expensive property. The median sales price for a home in New Jersey in September 2021 was $423,000. Assuming the homeowner has a home valued for that amount and must pay the average property tax rate of 2.44%, they’d owe a whopping $10,321.20 in taxes.

States with the lowest income tax rates and highest median income

There are eight states with no state income tax in 2022:

1. Alaska
2. Florida
3. Nevada
4. South Dakota
5. Tennessee
6. Texas
7. Washington
8. Wyoming

Note: Although New Hampshire has no employment income tax, it does have a 5% tax on dividend and interest income. Employment income is a lot more common than dividend and interest income, but it’s still worth considering.

The states with the highest personal income tax rates:

Remember, most states tax income on a marginal basis, which means that each segment of an individual’s income is taxed in progressively larger amounts. All of the states with the highest personal income tax rates use marginal or progressive taxation.

Here are the nine states with flat income tax rates in 2021:

One thing to note: Income can be taxed at both the federal and state level. Even if a state doesn’t have a personal income tax, an individual may owe money on their income to the federal government.

Income tax rates only paint part of the picture. Another big part is how much income folks bring in. This study used U.S. Census Bureau data from 2014 and 2019 to find median income and change over time.

The five states with the lowest median income in 2019 were:

1. Mississippi – $45,081
2. West Virginia – $46,711
3. Arkansas – $47,597
4. Louisiana $49,469
5. New Mexico – $49,754

The five states with the highest median income in 2019 were:

1. Maryland – $84,805
2. New Jersey – $82,545
3. Hawaii – $81,275
4. Massachusetts – $81,215
5. Connecticut – $78,444

This study also looked at the change in median income over five years. While all states experienced growth in median income, some grew more than others. Alaska’s median income increased a measly 8.1%. Wyoming and Louisiana also lagged, with only 10% growth over five years. Oregon was at the other end of the spectrum, with its median income increasing 24.3% between 2014 and 2019. California and Washington tagged close behind at 22.4% during the same period.

Tips for managing your finances

If you’re already thinking about moving, this study could help you find the right mix of lower costs and better opportunities. But if you’re staying put, there are a few things you can consider to help you manage your finances better.

Making a budget is a basic first step that can help you get your arms around your financial situation.

Once you know where you’re at, you can set a goal. Maybe it’s paying off debt. Maybe it’s building an emergency fund. Or buying a home. Whatever it is, it’s a lot easier to tackle making a plan if you have a budget and a goal.

Thinking about taxes throughout the year can be helpful too. A good place to start is your W-4, if you have one. Many employees fill out W-4s when they begin working for a new employer. These forms tell employers how much should be withheld for taxes from an individual’s paycheck. If you find yourself owing a ton or getting a huge return each year, it may be time to check your W-4 and the allowances you’ve selected.

There are also some financial moves to consider before the end of every year to help prepare for tax season.

Regardless of where you are in your financial journey, knowledge is power!

Methodology

To determine the best states to live in for your finances, all 50 U.S. states were analyzed using the following criteria:

1. State revenue per capita, sourced from the Tax Policy Center
2. State income tax rate, sourced from the Tax Policy Center
3. State and local property taxes collected per capita, sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances
4. Effective property tax rate is based on median property taxes paid divided by median home value, with data sourced from the U.S. Census Bureau’s 2019 American Community Survey and Annual Survey of State and Local Government Finances
5. Percentage of public pension plan funded, sourced from the Tax Policy Center
6. Median home sales price for September 2021, sourced from Redfin
7. One-year home value appreciation, 2-year home value appreciation and 5-year home value appreciation is based on median home value for all homes from September 2016  through September 2021, sourced from Zillow
8. Groceries cost-of-living index, utilities cost-of-living index, transportation cost-of -living index and healthcare cost-of-living index all sourced from the Missouri Economic Research and Information Center, second quarter 2021
9. Median household income by state from 2014 and 2019, sourced from the U.S. Census Bureau
10. State pension funding in 2021, sourced from the Pew Charitable Trusts

All these factors were scored, then added together to get a final score, allowing Credit Karma to rank states from best to worst.

Sources

• Missouri Economic Research and Information Center for Q2 2021
• Pew Charitable Trusts – State Pension Funding Gap 2021
• Redfin Data Center – Median home values
• Tax Policy Center – State revenue per capita 2019
• Tax Policy Center – State income tax rates 2022
• U.S. Census Bureau’s 2019 and 2014 American Community Survey
• U.S. Census Bureau’s 2019 Annual Survey of State and Local Government Finances
• Zillow Home Value Index