Experian’s third annual State of Credit report says Minneapolis residents racked up Vantage scores averaging 787 out of a possible 990, way above the national average of 750. Beyond bragging rights, the numbers bode well for its residents getting better terms on loans.

Although the report shows some encouraging signs of credit improvement despite the recession, it also shows that some areas of the country are faring much worse than others.

Northern cities flourish, while southern states flounder
Experian’s report looked at the average Vantage scores of cities throughout the U.S. Vantage scores are developed jointly by major credit bureaus Experian, TransUnion and Equifax and range from 501 to 990 (the more commonly used FICO score uses 300 to 850). On both scales, the higher the number, the lower the credit risk.

As in the previous two years, this year’s rankings reflected a geographical divide. The Upper Midwest swept the top five, and the bottom five cities were all in the South.

Here’s a rundown of the cities with the top five and bottom five cities (and their average Vantage scores).

Top 5 cities:

1. Minneapolis, Minn. (787)
2. Madison, Wis. (786)
3. Wausau, Wis. (785)
4. Sioux Falls, S.D. (784)
5. Cedar Rapids, Iowa (783)

Bottom 5 cities:

1. Harlingen, Texas (688)
2. Jackson, Miss. (702)
3. Corpus Christi, Texas (706)
4. Monroe, La. (708)
5. Shreveport, La. (709)

Have recession lessons been learned?
Experian has conducted the survey for each of the past three years to see whether lessons have been learned from the economic downturn and whether Americans have improved at policing their spending.

Overall, there’s progress: The average number of late payments dropped 2 percent and average credit scores ticked up from 749 to 750 this year.

In several pockets of the country, the gains were dramatic. Two cities hit particularly hard in the recession — Las Vegas and Bakersfield, Calif. — were among the biggest gainers in credit scores since 2011. Both have been in the bottom 10 the past two years, but managed to avoid climb out of that ranking this year.

Some factors that likely helped consumers in managing debt were big reductions in foreclosure and unemployment rates. Las Vegas’ foreclosure rate dropped a whopping 162 percent, and unemployment dropped 2.5 percent from 2011 to 12.5 percent in 2012. Bakersfield residents were able to reduce their late payments by 28 percent, while foreclosures decreased 15 percent and unemployment decreased 10 percent to land at 13.9 percent. Consequently, Bakersfield consumers had the highest credit score gains in the survey, reaching an average of 717 (compared to an average of 708 just two years ago).

“Increasing numbers of Americans are showing they understand how credit works. They’re paying their bills on time and lowering their debt-to-limit ratio,” said Maxine Sweet, Experian’s vice president of public education, in a news release. “It’s encouraging to see them demonstrating that they have the resources to make those positive changes in how they manage credit.”

Experian took a look at more than 682,000 credit files and analyzed consumers’ average credit scores, debt levels and credit utilization in more than 100 U.S. cities.

So what is No. 1 city Minneapolis doing right?

“The most significant thing in Minneapolis is that consumers miss fewer payments,” Sweet told Credit Card Guide. “They don’t carry less debt, but they have lower utilization, meaning they aren’t charging their cards to the limit. We also note that they have lower unemployment, fewer foreclosures and are highly educated compared to the averages in other cities.”

The average credit score for people who landed mortgages in 2011 was 737, which is the highest rating on the 300-to-850 FICO scale since at least 2000, according to CoreLogic, a mortgage data and software company in Santa Ana, Calif. There were no signs of it dropping much for the first months of this year.

For comparison, the average score for mortgage approval in 2000 was 696. It has been steadily climbing for 11 years.

Other funds easier to get
Not all avenues of borrowing are becoming harder to access, however. While mortgage lenders have gotten more picky, qualifying standards for credit cards, car loans and business financing have loosened, according to the Federal Reserve’s April senior loan officer study on bank lending.

That study found that the percentage of banks that reported they were more willing to make consumer installment loans rose to its highest level since the first half of 1994.

About 20 percent of banks, and these were mostly large banks, reported having eased standards for approving credit card applications. Standards for loans to buy new and used car were eased by about 15 percent of banks.

Tips on getting best mortgage terms
But if it’s a mortgage you need, your credit score will likely have to be higher than the current midpoint score for all consumers, which Fair Isaac Corp. puts at 711. To get there, your credit report may need some polishing. Here are some tips for making sure your score looks good to creditors:

• Pay all your bills on time. Every one. Payment history makes up about 35 percent of your score, so attention to detail here is crucial.
• Keep your credit use low. Keep lots of air between your credit limit and what you’re spending. A good target to hit for credit utilization is no more than 30 percent.
• Don’t make a major purchase before the mortgage is finalized. Banks will see that as one more thing diverting your finances from paying on the mortgage. Be advised banks may recheck your credit up until the day you sign.
• Don’t close existing credit card accounts, even if you do not use them. About 15 percent of your credit score is based on your credit history and leaving them open gives you the benefit of the history they represent.

Finally, don’t forget to pull your credit report for free at AnnualCreditReport.com. Make sure you know where you stand and check to see whether there are charges outstanding that you didn’t put there or have already paid off. You can also pull your credit scores for about $20 each from Equifax and TransUnion at MyFICO.com.