Like a lot of American communities that were rapidly expanding after the turn of the millennium, Bakersfield, California, took it on the chin when the housing bubble burst. Foreclosures surged, home construction halted and unemployment reached nearly 18 percent in March 2010.
But a look at the credit files of more than 682,000 Americans in 143 markets shows some reason for optimism in Bakersfield and other severely busted housing markets like Las Vegas and Phoenix.
Credit reporting agency Experian, in its annual State of Credit report, saw the biggest improvements in struggling communities. For example, Bakersfield's average credit score rose by eight points from 709 to 717.
That compares with the nation's average credit score which rose by one point for the second year running. The U.S. national average is now 750 - out of a maximum score of 990, according to the Experian data shared exclusively with Reuters.
"When people are unemployed, they have to make the hard choices about bills they are going to pay, and the harder choices of the ones they can't afford," says Michele Raneri, Experian's vice president for analytics.
Bakersfield's credit score surge was the largest increase of any community in the survey and took the city out of the bottom 10 in the nation, where it has languished for the past couple of years.
Overall, Midwest cities dominate the top 10 areas with the best credit scores, Experian reports. Only two cities outside the Midwest, San Francisco (6th, with an average score of 783) and Boston (9th, 778) cracked the top 10 list.
A majority of the homes in Bakersfield are worth less than what is owed on their mortgages, known as being underwater, and the area experienced a staggering number of foreclosures.
"The fact that the credit scores are starting to rebound is a good sign," says Stan Humphries, chief economist for the real estate company Zillow. "Households are in better financial shape, which should present smoother sailing going forward."
Stability and slight upward movement in credit scores shows the "deleveraging" of the American consumer - getting out from under negative equity situations, as well as reducing mortgage and credit card debt. Recovery, Humphries says, is following a slow path, though. Just because consumers may have more opportunities to tap credit does not mean they'll start going out and spending way more.
It has been a particularly tough road in Bakersfield - a heavily agricultural section of central California where one of its malls is filled with vacant stores still lacks any anchors - but the change being seen in the credit scores can also be seen in the community, says Debra L. Moreno, the outgoing president and CEO of the Greater Bakersfield Chamber of Commerce. "It's been a difficult few years for businesses in our area and others, and like other communities we saw many business closures, downsizing, mergers, etc.," Moreno says.
The oil industry has grown while construction flagged and new businesses - from a new branch of Valley Republic Bank to a new CarMax dealership - have been sprouting up instead of fading away, she says. "Things are turning around. Our banks are starting to make loans again. I think everyone is more optimistic."
NOT ALL GOOD NEWS
Not everyone sees the credit score increases as a rosy sign. John Ulzheimer, president of consumer education for SmartCredit.com, says having a poor credit score to start with allows for a lot more upward movement.
"Areas with lower scores can more easily have dramatic score increases," he says. "Scores tend to act like water; they take the path of least resistance. Point being, it's easier to improve a bad score than it is to improve a better score."
Ulzheimer also says scores can improve over time as consumers gain further distance from a bad event, such as a foreclosure. These "organic" changes in a credit score don't point to any real positive change in behaviors, he says.
BEST AND WORST LISTS
Topping Experian's national credit score list is Minneapolis (787), followed by the Wisconsin cities of Madison (786) and Wausau (785). Rounding out the top 10 are Sioux Falls, South Dakota (784); Cedar Rapids, Iowa (783); Green Bay, Wisconsin (781); La Crosse, Wisconsin (779); and Duluth, Minnesota (777).
Raneri says high performing cities like Minneapolis share the characteristics of on-time bill paying and using a low percentage of available credit.
On the flip side, communities including Harlingen, Texas (688); and Jackson, Miss. (702); have a high percentage of people who pay bills late and max out their credit. Those two cities had the lowest scores in the nation, followed by Corpus Christi, Texas (706); Shreveport, Louisiana (708); Monroe, Louisiana (709); Augusta, Georgia (710); El Paso, Texas (710); Myrtle Beach, South Carolina (710); Memphis, Tennessee (711); and Savannah, Georgia (713).
Cities with the most improved average credit scores:
1. Bakersfield, California, 717 (709 in 2011)
2. Sioux Falls, South Dakota, 784 (778 in 2011)
3. Tyler, Texas, 715 (710 in 2011)
4. Wichita Falls, Texas, 728 (722 in 2011)
5. Fort Myers, Florida, 756 (750 in 2011)
6. Reno, Nevada, 746 (740 in 2011)
7. Dallas, Texas, 727 (722 in 2011)
8. Las Vegas, Nevada, 714 (709 in 2011)
9. Greenville, North Carolina, 734 (730 in 2011)
10. Phoenix, Arizona, 737 (733 in 2011)
(The author is a Reuters contibutor. The opinions expressed are his own.)
(Follow us @ReutersMoney or here. Editing by Beth Pinsker Gladstone, Lauren Young and Andrew Hay)