Financial LiteracySupplements

To Be Worthy: Creditworthiness Still Elusive for Many

One of the great misconceptions about financial literacy in America is that Black people are predisposed to poor money management. Unfortunately, a long history of discriminatory lending and banking practices that target non-Whites is often overlooked by those who tout such theories.

From 1933 to 1968, for instance, U.S. banks denied Black Americans access to financial services in a practice known as redlining. While this practice is illegal today, it had catastrophic, lasting results and forced Black families into relying on high-fee financial products such as payday loans and loan sharks to secure quick money.

Without bank accounts and access to loans to purchase homes, African Americans faced the opening of what would be a wealth gap that has spanned generations.

Additionally, credit scores – the three-digit number associated with creditworthiness – impacts almost every facet of our financial life and longevity but remain low for Black Americans.  Credit scores were created in 1956 by Bill Fair and Earl Isaac — the name FICO is an amalgamation of their names (Fair, Isaac and Company).  

But equally discriminatory, FICO scores do not factor in income, savings, utility bills, job status, or debit transactions.  Instead, FICO uses data from individual bank accounts, mortgages, and savings – all of which Blacks have in fewer numbers through redlining — to generate a score.  When we consider that Black homeownership rates are 30 percent lower than white homeownership rates, it only adds to the wealth gap if apartment and utility bills have no value in the rubric.

Credit scores are closely tied to someone’s ability to grow wealth and succeed financially in the U.S. since scores often determine eligibility for loans, apartment rentals, and even jobs.

A low credit score may also result in lost job opportunities.

Carmen Perez, founder of Make Real Cents, noted in a recent Business Week article that she had a job offer rescinded due to negative marks on her credit report.  

“At the time [the marks] included a defaulted student loan.  The pay that I would have earned from this particular role would have helped me pay back my student loan debt faster, but that benefit was never realized.”

So, how do we become creditworthy against seemingly stacked odds?  Invest in your financial future by taking courses and reading books about how credit, loans, and repayments work.

Try products like Experian Boost, which launched in 2019 and helps you factor in lease payment histories with a goal of boosting your credit score.  

Find out if your area has legislation, like New York’s Stop Credit Discrimination in Employment Act, which prohibits most employers from checking an applicant’s credit history to make hiring decisions. If that legislation is not active, contact your local representatives to seek help.

In this Quick Guide: Loans, Loans, Loans! we offer a few tips and information on how to navigate the loan system and ways of keeping your sanity while you do!  

Read, Learn, Grow.

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