Credit Rating Hurts Blacks & Latinos

Study says credit scores used against minorities
The Denver Business Journal - January 9, 2007by Renee McGawDenver Business Journal
Credit scores are used to deny African-Americans and other minorities access to credit and financial services, according to a study conducted by the University of Denver Center for African American Policy and released Tuesday by the National Black Caucus of State Legislators.

"Our research found that, while banks site branches in minority and lower-credit-score communities, they do not provide the same access to their services as those in higher-credit-score communities," Mississippi state Rep. Mary Coleman, immediate past president of the caucus, said in a statement. "And even worse, there is often no way for those trapped with sub-prime credit scores to establish a prime credit score -- which would enable wealth creation."

Key points of the study, which was conducted by Rickie Keys of DU's Center for African American Policy, included:

Credit scores are more closely correlated to lack of access to financial services for unbanked and underbanked communities than other factors, such as race, income and ethnicity.
Credit scores today are used for an increasing array of basic necessities, such as determining eligibility to obtain employment, rent a home, obtain insurance and open accounts for checking accounts, as well as basic utilities like telephone service or electricity.
The more than 130 million Americans lacking prime credit scores (also the unbanked and underbanked) are disproportionately African-American and Hispanic.
Although banks may be located in areas with high concentrations of low Fair Issac & Co. (FICO) scores, they do not provide proportional access to their services in these underserved areas, compared with higher-FICO-score, higher-income communities.
Researchers constructed maps overlaying FICO scores with race, income, employment, ethnicity and other variables with the availability of traditional banking and fringe financial institutions in various communities. Data came from a variety of sources including the U.S. Census Bureau, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Deposit Insurance Corporation, Credit Union National Association, state banking agencies and telephone directories, officials said.

"Having identified the problem, we found it especially disconcerting that there is no endorsed method by which consumers can move from a sub-prime credit score to a prime credit score," said Colorado Senate President Pro Tem Peter Groff, D-Denver, who is also executive director of the University of Denver Center for African American Policy. "It's a Catch-22. To build a prime score, banks require consumers to demonstrate positive credit; but banks won't extend credit to these consumers without a prime credit score, leaving many trapped.

"Exacerbating the problem is that consumers' on-time payment histories for things like rent, utilities, and non-traditional loans are not reported to credit bureaus," Groff said. "They're responsible borrowers, but they are being prevented from graduating to a prime credit score, and thus from gaining access to the financial services and products needed to establish wealth."