The power to shop around
North and South Dakota (which together comprise 1.6 million residents, or about the same as Phoenix), also ranked high in average credit scores.
Both Jeff Meyer, president and CEO of Dakota West Credit Union, a $250 million institution based in Watford City, N.D., and Steve Schmitz, president and CEO of the $565 million First Community Credit Union of Jamestown, N.D., suggested the financially conservative nature of the state’s residents accounts for the high credit scores.
"In general, it seems that people here don’t stretch themselves as thin on payments as they might in other areas of the county," said Schmitz. "Also, I think there is a stronger commitment to repay; with our rural population, you likely know your credit union loan officer personally, making it less likely that someone quits paying when times get tough.”
And some of that conservativism may arise from the boom-and-bust industries in the state—agriculture and energy—according to Melanie Stillwell, president and CEO of the $322 million Western Cooperative Credit Union in Williston, N.D. “And they tend to teach that to their children," she said. “North Dakotans do tend to be more conservative than many other states.”
One potential issue the region faces is that with it’s extremely low unemployment rate (1.9 percent in September 2017), the state is attracting jobseekers from other states with poorer credit histories. “The credit scores we see here at Dakota West are considerably below the state's average," Meyer said. "One reason for that may be a good percentage of the loan requests we receive come from members who only recently moved to North Dakota in the last couple of years. In most of these cases they arrived here for employment opportunities that didn’t exist where they came from, consequently they had difficulties meeting their financial obligations prior to arriving here resulting in the lower credit scores.”
The challenge, then, isn’t so much competition from other lenders, Meyer offered, but rather from "deciphering the true character" of the borrower. "Did the low credit [score] actually result from previous difficulties with employment or do they not place the proper emphasis on meeting their financial obligations in a timely manner?”
Still, CUs do face some stiff competition, particularly from online lenders, Schmitz noted. "Most of these online models are primarily driven by a person’s credit score and make North Dakota borrowers a good credit risk,” he said.
Stephanie Honeyman, VP of consumer lending at the $448 million Capital Credit Union, Bismarck, N.D., said her company has enjoyed the advantage of lending to a "lower-risk member base, resulting in lower-than-average portfolio delinquency percentages versus other parts of the nation.”
Honeyman estimated that 80 percent of Capital CU members have a 680 or higher credit score. "We do offer lower rates and faster loan decisioning to these high credit score members,” she said. “This probably doesn’t make it hard for us to lend, but certainly, we have to keep a close watch on what interest rates are being offered in the markets we serve to compete for the business.”
Moreover, as Barb Daniels, consumer and mortgage loan manager at Western Cooperative CU, observed, with so many “A” borrowers in the fold, there’s a lot of interest rate shopping being done.