Black and Hispanic Americans Often Have Lower Credit Ratings
Credit scores in the United States don’t work for many black and Hispanic Americans, who typically have lower credit scores than other racial groups and report feeling the system is against them.
About 54% of black Americans report having no credit or a poor to fair credit score, which is considered a score below 640, according to one. recent survey of 5,000 American adults by Credit Sesame. About 41% of Hispanics also report falling into this category.
In contrast, 37% of white Americans report having bad or no credit, and only 18% of Asian Americans report similar credit conditions.
“While the credit system was created to be blind, this data shows that black and Hispanic Americans are unfairly excluded from the system,” said Jay Moon, chief credit officer at Credit Sesame, said in a press release.
Credit scores, which range from 300 to 850, are based on a number of factors including the account’s payment history, the number of accounts opened, the length of your credit history, and how much you currently owe. . Your age, race, salary, work history and place of residence are not taken into account.
While race is not an explicit factor, common financial situations for many blacks and Hispanics do play a role in creditworthiness. More than half of black Americans live paycheck to paycheck, which could affect their payment history and how quickly they use credit to get by. In contrast, only about 44% of Americans report running out of money before payday, according to Credit Sesame.
Additionally, black Americans tend to have higher student debt ratios than the average person and only about half own a credit card, which can be a significant help in building credit if used correctly. .
In addition, 30% of blacks and 25% of Hispanics believe they have never had the chance to have good credit and believe the system has been unfavorable to them from the start. In fact, 30% of black Americans and 27% of Hispanics say they were misinformed or duped during their first experiences with credit. Only about 18% of whites and 15% of Asian Americans say they have been deceived in the same way.
Having bad credit has a number of financial consequencesincluding being refused a credit card or being charged higher interest rates on loans. It can also have an impact on housing, employment, mental health and even relationships, Moon says. “It is unacceptable that this affects the lives of some more than others,” he adds.
Those with a credit score between 300 and 549 report that their bad credit history has impacted their housing, careers, relationships and even their ability to communicate. About 28% of those with poor credit say they can’t rent the apartment they want, while 22% were denied a cell phone plan, according to an earlier report from Credit Sesame.
“Creating equal credit opportunities is a critical first step in helping to bridge the racial divide in our society,” Moon said.
Recent innovations and upcoming new fintech products could provide a much more complete picture of creditworthiness. Experience boost, for example, allows consumers to link their monthly utility and telecommunications bills to get credit for full and on-time payments.
“Whether it’s creating products explicitly for these underserved groups or providing more ways to access credit and resources, the important thing is to move forward,” Moon said.