Posted by: bkivey | 14 October 2010

Credit Rating

Anyone with steady work and a desire to buy has, at one time or another, wondered about their credit rating. This is especially true if they are contemplating a big-ticket item like a car or house or a large loan. A more favorable credit score translates into more better loan interest rates and thousands of dollars saved compared to a less-favorable score. If you want the advertised interest rates you’d better be in a position to be a ‘well qualified buyer’. If not, you might still get the car or the house or the loan, but you’ll pay a lot more for the same thing.

As go consumer credit scores so go the same for political entities like towns and states and nations. After reading that my home state’s credit score was in danger of being lowered if the state took on any more debt, I became curious about the comparative credit ratings of the fifty states and how they stacked up against some national scores. How do the financial markets view my state? Is California the financial basket case it’s perceived to be? What’s the financial health of my state compared to other countries?

Thanks to Ben Schott at The New York Times, we can look at a chart and find the answers to these questions and many, many more. Some of the data is surprising, and depending on where you live, may be cause for concern the next time your state lawmakers get together. 

Apologies for the poor image quality, but the original is a GIF file and thus does not enlarge well.

While all US states are ‘A-listers’, California and Illinois are perilously close to falling out of that group. Both have credit ratings worse than countries such as Botswana, Chile, Israel, and Italy and are on par with the likes of Poland and Libya.

A state’s (or a country’s) credit rating has a direct impact on the citizens. Because the measure determines how much and at what rate money can be borrowed, and for some institutions whether funds can be lent at all, state spending that the voters may find desirable can’t be implemented, programs may be cut, taxes raised, or some combination thereof. The money has to come from somewhere. If you live in a state with a lower credit rating, and politicians start talking about spending money, you may want to ask yourself, and them, about the differences between cost, value, needs, and wants.

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